On 23 February 2018, the Insurance Distribution Directive (IDD) has been transposed into German law. On 17 July 2018, the German Federal Financial Supervisory Authority (BaFin) has published a new Circular no. 11/2018 concerning insurance undertakings´ cooperation with insurance intermediaries as well as insurance undertakings´ risk management with regard to insurance distribution ("Rundschreiben 11/2018 zur Zusammenarbeit mit Versicherungsvermittlern sowie zum Risikomanagement im Vertrieb").
Background of the Circular
According to section 48 of the German Insurance Supervisory Act (VAG), insurance undertakings are obliged to cooperate with insurance intermediaries only if they are properly licensed or one of the licensing exclusions (as laid down in section 34d of the German Trade, Commerce and Industry Regulation Act (GewO) applicable to insurance intermediaries) is relevant. This obligations is not only relevant for German insurance undertakings, but also for EU-/EEA-undertakings who conduct insurance business in Germany via FoS or FoE; cooperation between these foreign insurance undertakings and insurance intermediaries is subject to BaFin´s supervision as well.
With the new Circular 11/2018 – which sets aside former Circular 10/2014 – BaFin further explains (inter alia) how cooperation with insurance intermediaries has to take place. In addition, BaFin gives guidance on how the insurance undertaking’s risk management with regard to insurance distribution has to be embellished. It also contains details with regard to the prohibition of extra allowance (which is now expressly laid down in section 48b VAG).
The Circular is complemented by special explanations ("Erläuterungen") by BaFin which further outline which changes have been made in comparison to the first draft of this Circular which had been heavily discussed in the course of the consultation procedure. In these special explanations, it is expressly pointed out that the new Regulation for Insurance Intermediaries (Versicherungsvermittler-Verordnung –VersVermV) – which has to be changed due to the implementation of the IDD as well – has not come into force yet.
Circular is applicable to insurance undertakings from EU-/EEA-member states as well
BaFin expressly makes clear in the Circular itself that it is also applicable to insurance undertakings from EU-/EEA-member states who conduct insurance business in Germany. However, the remarks regarding risk management are excluded.
Content of the Circular
With regard to the cooperation with insurance intermediaries, the content of the new Circular 11/2018 is comparable the content of the former Circular 10/2014.
As before, BaFin explains in detail which obligations insurance undertakings have if they want to cooperate with tied agents. Especially, the insurance undertakings have to check themselves whether the tied agent is "fit and proper" before cooperation commences, i.e. whether the tied agent is reliable, lives in sound financial circumstances and is properly qualified to mediate the sort of insurance contracts in question. Also in the course of cooperation, the insurance undertaking has to check these requirements if there is a reason for it. Especially, the insurance undertaking has to consider the register kept by the competent Chamber of Industry and Commerce which contains information on those businessmen who have received a prohibition of business.
The Circular further contains, as before, remarks with regard to the cooperation with licensed insurance intermediaries and intermediaries who are exempt from the licensing requirement (especially ancillary insurance intermediaries). With regard to insurance brokers, BaFin now expressly asks the insurance undertakings to take into account the provisions of the RDG (Rechtsdienstleistungsgesetz) if the insurance undertakings wants to instruct insurance brokers (who are instructed by their customers, the policyholders, thus being the "advocate" of their customers).
As the prohibition of special allowances has now been codified in sect. 48b VAG in the course of the implementation of the IDD, the Circular also deals with this prohibition. BaFin further explains what it considers to be special allowance in the sense of sect. 48b VAG and which exceptions are applicable. Further details are laid down in the special explanations ("Erläuterungen"). For example, those allowances which are of low value only (i.e. 15 EUR per insurance contract and insurance year) are not forbidden. This exception, in BaFin´s view, does not only cover allowances granted in the course of conclusion of the insurance contract, but also allowances granted for already existing insurance contracts. Moreover, it is possible to permanently increase the insurance benefits or reduce premiums; however, BaFin makes clear that this can only be done by an express contractual agreement between insurance undertaking and policyholder, not by an agreement between insurance intermediary and policyholder only.
Lastly, the Circular contains comments with regard to cooperation with insurance advisers ("Versicherungsberater") and mere "Tippgeber" (who do not mediate insurance contracts, but only make contact between potential policyholders and potential insurance undertakings). And finally, BaFin makes explanations with regard to the reimbursement of insurance distributors.