This article therefore first explains the legal environment in which insurance intermediaries operate, as well as the different types of intermediaries and how these are supervised. It then details the important topic “BaFin and insurance companies – supervision of distribution-related activities” followed by further information for insurance intermediaries.

1.) Legal environment

BaFin does not supervise insurance intermediaries. However, there are statutory provisions in place, in particular sections 23, 26 and 48 et seq. of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG), which allow BaFin to monitor the distribution activities of insurers. These include legal requirements governing cooperation between insurers and insurance intermediaries.

Statutory provisions on insurance intermediaries in Germany are specified in a large number of different laws and regulations. The German Industrial Code (Gewerbeordnung – GewO) for example determines whether intermediaries require official authorisation to carry out their activities and sets out the responsibilities of the chambers of industry and commerce (Industrie- und Handelskammer – IHK). The German Regulation on Insurance Mediation (Versicherungsvermittlerverordnung – VersVermV) in turn sets out the details regarding the expertise required of insurance intermediaries alongside their training obligations. In addition, regulations in the individual federal states determine how the work involved in the supervision of intermediaries is distributed between the chambers of industry and commerce and the trade offices. Administrative offence proceedings against intermediaries, e.g. due to breaches of the VersVermV, fall exclusively within the remit of the competent authorities defined by federal state law (chambers of industry and commerce, trade offices).

In addition to these public law provisions, there are also a series of civil law provisions that deal with advice provided to customers by insurance intermediaries, in particular the German Insurance Contract Act (Versicherungsvertragsgesetz – VVG).

There are further requirements at the European level that apply to insurance distribution. The most important legal act in this regard is the Insurance Distribution Directive, which was transposed into German law in 2018 through amendments in particular to the VVG, the VAG and the GewO. In addition to the Insurance Distribution Directive, there are several European regulations which contain requirements for the distribution of insurance products, in particular by insurance companies. In this context, the Regulations on the product approval process and on the distribution of insurance products, as well as the PRIIPs Regulation are of particular importance. In contrast to the European directives, which must first be transposed into national law, these regulations are directly applicable in the individual member states.

2.) What is an insurance intermediary?

The term insurance intermediary is defined in section 59 of the VVG. Insurance intermediaries within the meaning of the VVG are insurance agents and insurance brokers. The most important distinguishing criteria are as follows:

• An insurance agent is anyone contracted by an insurer or by another insurance agent to distribute insurance contracts on a commercial basis.
  
• An insurance broker is anyone who distributes or concludes insurance contracts for a client on a commercial basis without having been contracted to do so by an insurer or insurance agent. Insurance brokers operate exclusively in the interests of their clients.
  

The following are not insurance intermediaries:

• Insurance consultants require a separate authorisation by the chamber of industry and commerce. An insurance consultant is anyone who advises third parties on a commercial basis in respect of concluding, amending or reviewing insurance contracts or asserting claims arising under insurance contracts, or anyone who represents the policyholder out of court vis-à-vis the insurer without receiving an economic benefit from an insurer or being dependent on the insurer in any other way (see section 59 (4) sentence 1 of the VVG).
  
• Referral agents: for the distinction between insurance intermediaries and referral agents, as well as the distribution of insurance products over the internet, see the decision by the Federal Court of Justice (Bundesgerichtshof – BGH) [“Tchibo”; BGH decision of 29 November 2013 (ref.: I ZR 7/13)] and the final decision of the Regional Court of Wiesbaden [“Penny”; decision of 14 May 2008, 11 O 8/08].
  
• Employees of an insurance company who act as intermediaries.
  In this context, it is important to note that, in addition to the authorisation to distribute insurance contracts, insurance intermediaries may also hold other authorisations, e.g. to distribute financial investments (section 34f of the GewO).
  

3.) Do insurance intermediaries need authorisation?

The GewO regulates whether insurance intermediaries need authorisation for their activities (section 34d of the GewO). The responsible body is the local chamber of industry and commerce. The GewO distinguishes between activities that require authorisation and those that do not. The following distinctions are significant in practice:

Insurance brokers and insurance agents:

As a general rule, insurance brokers and insurance agents require authorisation to carry out their activities (section 34d (1) of the GewO). The chamber of industry and commerce of the respective federal state examines whether the relevant requirements regarding reputation and professional qualifications (fit and proper requirements) and other criteria are met. If the insurance broker or agent is deemed to meet the requirements of this examination, they receive a certificate of authorisation from the chamber of industry and commerce and are entered into the register of insurance intermediaries and consultants kept by the Association of German chambers of industry and commerce (Deutscher Industrie- und Handelskammertag e.V. – DIHK).

Insurance consultants:

Like insurance brokers and insurance agents, insurance consultants also require authorisation (section 34d (2) of the GewO). The scope and procedure of the examination are identical.

Product-accessory intermediaries:

In accordance with section 34d (6) of the GewO, insurance intermediaries may, on request, be exempted from authorisation if the following requirements are met:

1.) insurance distribution is provided as an additional service to the goods or services delivered in the course of the intermediary’s principal activity,

2.) the insurance distribution activity is carried out directly on behalf of one or several authorised insurance intermediaries and/or of one or several insurers,

3.) there is proof of professional indemnity insurance or another comparable guarantee, and

4.) the parties stated in point 2.) provide a declaration that the intermediary fulfils the requirements regarding reputation and professional qualifications (fit and proper requirements) and has well-ordered finances.

A typical example would be the distribution of motor trade insurance.

Tied intermediaries:

In accordance with section 34d (7) sentence 1 no. 1 of the GewO, the activities of “tied” insurance intermediaries are also exempt from authorisation where they act in the capacity of insurance agents. Such intermediaries work on behalf of one insurer exclusively. Before tied intermediaries take up their activities, the respective insurer must check whether they comply with the requirements regarding reputation and professional qualifications (fit and proper requirements) and other prerequisites based on criteria under commercial law. If all requirements are met, the insurer registers the tied insurance intermediary in the register of insurance intermediaries and consultants kept by the DIHK, see section 48 of the VAG.

Annex intermediaries:

In accordance with section 34d (8) of the GewO, insurance intermediaries do not require authorisation:

1.) If they are ancillary insurance intermediaries

a) whose principal professional activity does not consist in the distribution of insurance products,
b) the insurance is complementary to the goods or services supplied, and
c) the insurance covers the risk of breakdown, loss of, or damage to the good or the non-use of the service supplied, or damage to or loss of baggage and other risks linked to travel booked with the provider and
i. the amount of the premium paid for the insurance product does not exceed EUR 600 calculated on a pro rata annual basis or
ii. by way of derogation from point (i), where the insurance is complementary to a service referred to above and the duration of that service is equal to or less than three months, the amount of the premium paid per person does not exceed EUR 200.

A typical example would be the distribution of guarantee insurance when selling electronic products.

2.) If they distribute insurance as a Bausparkasse or on behalf of a Bausparkasse as part of a collective agreement, provided the insurance forms part of the Bauspar contracts and its exclusive purpose is to secure the repayment of loans provided by the Bausparkasse.

3) Or if, complementary to a good or service provided in relation to loans or leases, they distribute residual debt insurance the annual premium of which does not exceed EUR 500.

Foreign insurance intermediaries:

Insurance intermediaries domiciled in a Member State of the European Union or another signatory state to the Agreement on the European Economic Area (EEA) may operate in Germany if they have been registered in accordance with the statutory provisions before taking up their activities. The DIHK with its registered office in Berlin is responsible for this process. Further details on the process and other related information are available on the website of the DIHK (www.dihk.de).

4.) Registers of intermediaries

There are various registers of intermediaries in Germany. For example, the website www.vermittlerregister.info not only contains the register of insurance intermediaries and consultants, but also the register of investment intermediaries and fee-based investment advisers. The DIHK keeps theses registers for the approximately 79 local chambers of industry and commerce.

5.) BaFin and insurance companies – supervision of distribution-related activities

General requirements for insurance distribution:

Section 48 of the VAG specifies the general requirements for insurance distribution. Among other things, insurers must ensure that they cooperate only with tied agents who are of good repute (proper), have well-ordered finances, are adequately qualified (fit) to distribute the relevant insurance product(s) and participate in regular training activities. These requirements also apply to employees who are directly or significantly involved in the distribution of insurance products, such as employees who advise customers.

In its Circular 11/2018 on Cooperation with Insurance Intermediaries and Risk Management in Distribution, which entered into force in July 2018, BaFin specified, on the basis of its legal opinion, the legal provisions insurers have to observe when cooperating with insurance intermediaries. Furthermore, the Circular also sets out BaFin’s expectations regarding distribution-related activities that contain specific risks and thus require special attention in the context of risk management.

Moreover, in 2015 BaFin issued a Collective Administrative Act on the reporting of irregularities in insurers’ administrative and distribution operations, which lays down guidelines for insurers as to when and how irregularities in distribution, such as fraudulent actions by insurance intermediaries, are to be reported to BaFin.

Distribution remuneration and avoidance of conflicts of interest:

The requirements on distribution remuneration and avoidance of conflicts of interest set out in section 48a of the VAG stipulate, among other things, that the distribution remuneration of insurance companies and their employees may not conflict with their duty to act in the best interests of their clients. In particular, insurers are not permitted to make any arrangement by way of distribution remuneration, sales targets or otherwise that could provide an incentive to themselves or their insurance intermediaries to recommend a particular insurance product to a client when they could offer a different insurance product which would better meet the client’s needs. Additional obligations apply to the distribution of insurance-based investment products, i.e., in simple terms, insurance products that are primarily acquired for investment purposes (such as endowment and pension insurance). At the European level, these obligations were further specified in the Delegated Regulation on insurance-based investment products. Insurers in Germany are obliged to comply with the provisions of this regulation as it is directly applicable without having to be transposed into national law, see Guidance Notice on Aspects of Conduct of Business Supervision for Savings Products.

Prohibition on the passing on of special allowances and commissions:

In accordance with section 48b of the VAG, insurers and insurance intermediaries are prohibited from granting or promising special allowances to policyholders, insured persons or beneficiaries under an insurance contract unless such allowances are of low value. Low-value inducements mean rewards or gifts for initiating or concluding a contract, provided that they do not exceed a total value of EUR 15 per insurance relationship and calendar year. Special allowances are permissible if they are used to permanently increase the benefits or reduce the premiums for the contract concerned. Further information on this can be found in the Guidance Notice on the Interpretation of the “Prohibition on the Passing on of Special Allowances”.

Product approval process:

Section 23 (1a) et seq. of the VAG defines the provisions for the product approval process. These provisions require insurers that manufacture insurance products for sale to maintain, operate and regularly review a process for internal approval for distribution of each insurance product or any significant modification of existing insurance products (product approval process). The process must ensure that the product is only distributed to a target market whose needs, objectives and characteristics it actually meets. The existing national requirements are further specified at the European level in the Delegated Regulation on product oversight and governance requirements. Further information on insurance-based investment products and other life insurance savings products can be found in the Guidance Notice on Aspects of Conduct of Business Supervision for Savings Products.

Risk management:

Section 26 of the VAG lays down the principle that insurers must have an effective risk management system that is well integrated into the organisational structure and decision-making processes of the company and that, by means of an appropriate internal reporting system, duly takes into account the information needs of the persons who effectively run the company or are responsible for the key functions. BaFin expects that this also ensures that distribution risks are appropriately included, monitored and documented.

6.) For insurance intermediaries: complaints from insurance intermediaries – are customer interests affected?

BaFin also receives complaints from insurance intermediaries who are complaining about “their” insurer or about other intermediaries. These complaints often relate to commissions or customers being “enticed away”. BaFin cannot help in these cases.

BaFin has no statutory mandate for supporting insurance intermediaries in enforcing claims against insurers. It is therefore unable to provide assistance in disputes between intermediaries and insurers, e.g. disputes related to employment law, competition law or commissions. The same applies to disputes between intermediaries, for instance if clients are enticed away or internal association regulations are breached.

Nevertheless, such complaints may provide indications of general negative developments at an insurer, which BaFin will then pursue. However, as a result of its duty of confidentiality, BaFin cannot give any information to the complainant regarding possible supervisory measures.

BaFin also investigates complaints from insurance intermediaries when, in addition to the intermediary’s interests, the interests of the customer are also affected:

• The decisions by the Federal Court of Justice (Bundesgerichtshof – BGH) of 29 May 2013 (ref. IV ZR 165/12) and 21 January 2016 (ref. I ZR 274/14) are relevant here. The Federal Court of Justice decided that there is, as a general rule, an ancillary contractual duty on the part of the insurer to conduct correspondence with an insurance broker who has been engaged by the policyholder. If, in exceptional cases, an insurer fails to comply with this duty, BaFin will obtain a statement from the insurer and, if necessary, raise an objection to its conduct.
  
• As far as enticement of customers is concerned (an intermediary poaches customers from another intermediary), BaFin will pursue the complaint if this behaviour or a portfolio transfer negatively affects the collective customer interest.
  

7.) For insurance intermediaries: “blacklist”, AVAD, reporting of irregularities

• The following explanations on the keywords “blacklist”, “AVAD” and “reporting of irregularities” are important for insurance intermediaries:
  

• BaFin does not maintain any “blacklist” on insurance intermediaries.
  BaFin does not report intermediaries to the Information Office on the Insurance and Buildings Societies’ Field Service and Insurance Brokers in Germany (Auskunftsstelle über Versicherungs-/Bausparkassenaußendienst und Versicherungsmakler in Deutschland e.V. – AVAD) or request information from AVAD. BaFin also has no influence over reports of insurers to AVAD. AVAD is a private association domiciled in Hamburg and is not subject to supervision by BaFin. Further information can be obtained at www.avad.de.

  If an insurer complies with its reporting obligations towards BaFin within the scope of the “Collective Administrative Act on the reporting of irregularities in insurers’ administrative and distribution operations” and reports on an intermediary, the report itself, the name of the intermediary and any other information from the report will not be passed on to private individuals or other companies. To the extent permitted by law, other authorities may be informed in justifiable individual cases.