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Erscheinung:10.05.2022
Continuous protection for all
More and more insurers are offering short cancellation notice periods to meet their customers’ demands for increased flexibility. But that is problematic with motor vehicle liability insurance, because insurers are supposed to provide across-the-board coverage.
Nowadays, many insurers offer short cancellation notice periods in order to meet customers’ demands for greater flexibility and to distinguish themselves from their competitors. Some even offer the right to cancel with just a day’s notice. And in many instances this is indeed possible when the principle of contractual freedom applies. But is this the case for motor vehicle liability insurance? No! This type of policy requires a certain term length and cancellation notice period. This is an issue that BaFin is monitoring closely.
Why continuity matters for motor insurance
Motor vehicle insurance policies are different from other types of insurance: they are supposed to ensure continuous insurance protection for all road users. For this reason, motor vehicle insurance is compulsory insurance and falls within the scope of the Compulsory Insurance Act (Pflichtversicherungsgesetz – PflVG). The Act states that the keeper of a motor vehicle is required to take out such a policy to cover themselves, the owner and the driver. It also sets out a contract term of one year and a cancellation notice period of one month to the end of the respective year as a general rule (see info box).
These rules are not just beneficial for insurers and policyholders. First and foremost, they serve to provide continuous protection for all road users as far as possible.
Termination process
The importance of this becomes clear when we take a look at the usual process for terminating motor vehicle liability insurance: a valid liability insurance policy is required in order for a vehicle to be registered. This is stipulated in section 3 (1) sentence 2 of the Vehicle Registration Regulation (Fahrzeug-Zulassungsverordnung – FZV). When such a contract is terminated, the insurer notifies the competent vehicle registration office. If the insurer does not do this, they continue to be liable for insurance claims indefinitely under section 117 (2) of the Insurance Contract Act (Versicherungsvertragsgesetz – VVG). When the vehicle registration office receives such a notification from the insurer, it finds out whether a new insurance policy has been taken out for the vehicle. If it has not, the office revokes the vehicle’s registration or uses other measures to ensure that either the vehicle is deregistered or the insurance is renewed.
If the keeper of the vehicle fails to take out a new insurance policy and causes an accident, the other persons involved would be victims in two senses: it is possible that the person driving the car will not be able to indemnify them for their losses because they do not have the financial means to do so. Even the continuation of insurance under section 117 of the Insurance Contract Act does not provide a safety net; it only provides for temporary cover for one month after the insurer has notified the vehicle registration office of the cancellation.
This makes it all the more important that, if at all possible, all motor vehicle liability insurance contracts conform to the requirements of the PflVG and, for example, stipulate a sufficient cancellation notice period. This is the only way to minimise the risk of insurance lapses.
What does BaFin do?
Because the complete and continuous protection of all road users is so important, BaFin ensures that insurers comply with the requirements of the Compulsory Insurance Act. Insurers that offer motor vehicle liability insurance contracts that can be cancelled during the course of the year or have cancellation notice periods that are too short can expect BaFin to contact them and demand that they adapt their insurance terms and conditions.
At a glance:Legal provisions relating to the cancellation of motor vehicle liability insurance contracts
The wording of section 5 (5) of the Compulsory Insurance Act, in particular sentence 2, provides for a term of one year for motor vehicle liability insurance, which is to be extended by one year at the end of the term. Under this provision, policies can be cancelled at the end of the year with one month's notice and cannot be cancelled during the course of the year.
Section 5 (5) sentence 1 of the Compulsory Insurance Act contains the following provisions regarding the termination of an insurance relationship: the insurance relationship ends at the latest:
- if it began on the first day of a month, one year from this date,
- if it began on any other date, one year from the first day of the following month.
Under section 5 (5) sentence 2 of the Compulsory Insurance Act, the insurance relationship is extended by one year if it is not cancelled in writing at least one month before the end of its term. The wording of sentence 1 – “at the latest” – suggests that there are ways in which insurance contracts can be cancelled before the end of the year. The Compulsory Insurance Act provides for certain ways in which contracts can be terminated during the year, in particular in section 5 (5) sentence 4. However, in these cases the contract is terminated without being cancelled. In all other cases, the Compulsory Insurance Act assumes that motor vehicle liability insurance contracts generally run for one year, are extended by one year and can be cancelled at the end of the year with one month’s notice (see Bundestag printed paper 12/6959, p. 109; MüKoStVR/Rolfs/Binz (2017), 1st ed., PflVG § 5 margin no. 8; Stiefel/Maier/Jahnke (2017) 19th ed., PflVG § 5 margin no. 77).
Motor vehicle liability insurance as a fixed-term continuous obligation (Dauerschuldverhältnis)
Motor vehicle liability insurance is therefore a continuous obligation with a fixed term, usually of one year. Ordinary cancellation before the end of the term is not possible and under section 5 (5) sentence 2 of the Compulsory Insurance Act, the insurance can only be cancelled at the end of the term with a notice period of one month. This legal principle is also reflected in section 10, second half-sentence of the Insurance Contract Act, under which an insurance contract generally expires at the end of the last day of the policy period. Section 11 of the Insurance Contract Act also supports the legal principle that it is only possible to cancel insurance agreements if they are concluded for an unlimited period (section 11 (2) of the Insurance Contract Act), and not if they are concluded for a fixed period (section 11 (1) of the Insurance Contract Act). Under section 5 (5) of the Compulsory Insurance Act, motor vehicle liability insurance is generally to be agreed for a fixed period, usually one year. It therefore ends when this period is over. The specific rule in the Compulsory Insurance Act setting out an automatic one-year extension if the insurance agreement is not cancelled before the end of the contract does not change this.
Author
Dr Anne Lehder
Division VA 37
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