Since the latest information on the draft bill on the implementation of the EU directive, which is now also about to be implemented in Germany, RWB has been receiving an increasing number of enquiries on the subject of pecuniary loss liability on a daily basis. At the same time, the same desire is at the forefront of many market participants’ minds:
the policies should be as cheap as possible. Companies, organisations and groups also ask for group contracts.
In our view, however, these generally do not meet the requirements of the EU Insurance Mediation Directive (EU Mediation Directive). Sometimes they even involve massive disadvantages for distributors and their intermediaries. In order to illuminate the topic from several sides as neutrally as possible, we have asked for the opinions of our colleague John as a VSH specialist, the lawyer Fiala as an experienced professional and connoisseur of the market, as well as some graphics to clarify the problem, and a quote from a report by e+s Rück. The graphic examples are exemplary from different offers of the past.
They only serve to illustrate and clarify the subject matter. First of all the statement of Thorsten Rehfeldt – Hans John Versicherungsmakler GmbH “Professional liability insurance as co-insurance via a distribution company” Why is a group contract neither recommended for the distribution company nor for the distribution partners connected to it? As a serious sales company, one should no longer resort to group contracts in the knowledge of the future EU regulations. On the one hand, any overall maximisation would not be in conformity with EU law in the sense of the draft bill of 24 March 2006 and, on the other hand, the affiliated distribution partners may suffer existential damage in the form of a lack of insurance cover, because there are already insurers today who, in the sense of taking into account previous insurance periods, only take into account previous insurance where the applicant was also a contractual partner, i.e. policyholder. In the case of group contracts, on the other hand, there is usually only one policyholder, namely the person, company or institution that maintains the “group”. Example: An insured person is “co-insured” for 5 years via a group contract.
Now the insured person has to or wants to insure himself because he is perhaps no longer part of the “group” or wants or has to change for other reasons. Within the framework of the subsequent liability, he now still has a limited number of years of cover for the so-called “old burdens”, i.e. for breaches of duty (violations) committed during the co-insurance via the group contract. If, however, the period of subsequent liability has expired and a notice of claim for a (possible) infringement from the time as co-insured only follows, insurance cover only exists if the new insurer has to assume responsibility for this in accordance with the conditions and the contract, which, as already mentioned, is not always the case. Thus, the sales company may have done a “disservice” to the sales partner, which, depending on the amount of damage, may cost him his entire existence. Further disadvantages result from aspects such as “breaches of obligations”, “waiver of recourse” or even the “obligation to pay premiums”, which are usually not sufficiently regulated.
For example, is there a precise rule on what happens if the insured properly reports a claim to the insurer but the latter fails to forward it? And has the distribution company or the “group VN” regulated the premium payment obligation on the part of the insured or how should a reminder procedure be carried out if there is only a “co-insurance”, i.e. no original contract, at the basis? This in turn can have a negative effect on the group policyholder, because if no corresponding provisions have been agreed, the legal provisions apply, according to which the policyholder (in this case the group policyholder) is liable for the premium…
We therefore recommend that both the sales companies and the sales partners make use of legally independent contracts, especially as these can, for example, be used as a basis for the distribution of goods and services. are also possible at special conditions within the framework of “sub-agency covers” and discounts of up to 50% are granted here. Sales companies will have to rethink at least in the medium term if they do not want to lose the coveted and desired sales partners due to the fact that they have been left in the open here. The lack of coverage, which is also described in Mr. Fiala’s opinion, may vary depending on the design of the contract (example in the chart). In the example, limited liability is granted for 100 sales employees, e.g. €20m cover, instead of the required total cover of €100m across all insureds. In our view, the shortfall in cover in such a contract is basically already present from the 21st employee onwards. Anyone who consistently scrutinizes the issue can see that premiums and benefits are diverging (Chart 2). In the example, the company has to pay about half the premium for 100 employees, but receives only 20% of the required benefit in return, compared to the 100 employees with individual policies that meet the required specifications and coverage amounts according to the EU directive. The third graph 3 then shows what is actually paid on average for €1m cover under the two different contracts. The premium for the individual policy for each sub-agent (broker) is approximately € 480.00.
For the limited total coverage in the group contract, the quasi-payment per million coverage amount is € 1,275. The understandable desire to save money is not only torpedoed by the contract constellation, but also turned into a negative relationship by the limitation of benefits. Agents who leave a group policy where they did not have their own policy and where the total cover was limited, have the problem of getting the desired retroactive cover for the previous period confirmed by the new insurer. It is therefore advisable for sales companies and employees to take care today to cover themselves as optimally as possible with individual policies with correspondingly adequate protection. Here it goes directly to the lawyer’s statement of Mr. attorney Fiala Here the mentioned quotation of e + s back: In its conversion of the cover obligation Michael Bantje of the e + s reinsurance wrote to the topic framework and group contracts: “It is questionable, in how far a national conversion will require from each insurance mediator the conclusion of an own liability insurance. In the area of professional liability insurance models for lawyers and tax advisors, the wording of § 51a BRAO and § 67a StBerG leaves no other option than that each individual in the professional group must take out their own professional liability insurance. In exceptional cases, framework agreements are agreed for larger law firms for administrative reasons.
From a contractual point of view, however, each partner of the partnership maintains an independent insurance contract from which mutual rights and obligations can be derived accordingly. For this reason, the lawyer or tax advisor can fully claim the agreed sum insured from his insurance contract without any further restrictions. Should regulations in an VersVermVO also provide that each individual intermediary has to maintain his own policy, the continued admissibility of framework agreements in the insurance intermediary sector is to be doubted.” The most important points to bear in mind when making your decisions have been worked out and summarised in the overview below. RWB Finanz’s tip Due to the listed explosiveness and complexity of the topic, we advise reviewing existing group contracts. It is also essential to consult an experienced VSH broker when drafting new VSH contracts, especially for medium-sized and larger organizations. Pay particular attention to adequately designed individual policies. We would be pleased to support you in the optimal design of special coverage concepts for you and your company.
by courtesy of
www.wmd-brokerchannel.de (published on 16.06.2006)
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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