A. Preliminary remark

1 This Guidance Notice provides interpretation guidance on the prohibition on the passing on of special allowances. It summarises and updates all guidance published in Circular 11/2018 dated 17 July 2018 and the explanatory notes to Circular 11/2018 – Insurance Distribution dated 17 July 2018 on the prohibition on the passing on of special allowances.

B. Introduction

2 The prohibition on the passing on of special allowances and commissions is regulated in section 48b of the VAG. Pursuant to section 48b (1) of the VAG, “insurance undertakings and insurance intermediaries within the meaning of section 59 (1) of the Insurance Contract Act (...) are prohibited fromgranting or promising special allowances to policyholders, insureds or beneficiaries under an insurance contract. This prohibition also applies to employees of insurance undertakings and insurance intermediaries. Any contractual agreement to the contrary is ineffective.” According to the Bundestag printed paper 18/11627, page 40, the provision is intended to prevent special allowances from creating inappropriate incentives for consumers.

C. Scope

3 Section 48b of the VAG covers special allowances in favour of policyholders, insured persons or beneficiaries. In accordance with the terminology of the Insurance Contract Act, “policyholders” also include persons who have not yet concluded an insurance contract (see Bundestag printed paper 16/13945, page 48). A “policyholder” within the meaning of section 48b of the VAG is also a person who is in the phase of “initiating” a contract (see section 48b (2) sentence 2 of the VAG).

I. Personal scope

4 According to its wording, section 48b (1) of the VAG applies to insurance undertakings and insurance intermediaries as well as their employees. BaFin supervises compliance with the prohibition on the passing on of special allowances and commissions with regard to insurance undertakings. Supervision of compliance with the prohibition with regard to insurance intermediaries is the responsibility of the competent Chamber of Industry and Commerce or other competent state authorities.

5 As a rule, Section 48b of the VAG does not apply to referral agents. The activity of a referral agent is essentially limited to establishing contact between a potential policyholder and an insurance intermediary or an insurance undertaking. This does not constitute insurance mediation within the meaning of section 34d of the German Industrial Code (Gewerbeordnung – GewO).

6 However, the planned transfer of part or all of the referral agent’s special allowance to the policyholder, insured persons or beneficiaries under an insurance contract with the knowledge of the insurance undertaking may be considered an indirect inducement in relation to the insurance undertaking within the meaning of Section 48b (2) sentence 1 of the VAG.
On the topic of referral agents reference is made to the explanations in Circular 11/2018 (Part B.VIII, margin nos. 123-133).

II Material scope

7 According to the wording of section 48b of the VAG, BaFin assumes that there is the alternative element of offence of “granting” and the alternative element of offence of “promising” a special allowance (see in particular on the latter Munich Regional Court I of 4 February 2020, case no. 33 O 3124/19, in particular margin no. 43 et seq. in a competition law case).

1. Inducement

8 Pursuant to section 48b (2) sentence 1 of the VAG, a special allowance means any direct or indirect inducement in addition to the benefit agreed in the insurance contract, in particular any

a) Direct inducement by insurance undertakings

9 A direct inducement means a benefit that is granted or promised directly by an insurance undertaking to a policyholder, an insured person or a beneficiary.

b) Indirect inducement by insurance undertakings

10 In BaFin’s opinion, an indirect inducement by the insurance undertaking is deemed to exist in any case if commissions paid by the insurance undertaking for the broking of insurance contracts are passed on in a planned manner with the knowledge of the insurance undertaking, if these are promised or granted indirectly – through an insurance intermediary – to the policyholder, the insured person or the beneficiary.

11 The planned promise/granting of inducements other than the aforementioned commissions by intermediaries/third parties to the group of persons named in section 48b (1) sentence 1 of the VAG with the knowledge of the insurance undertaking may be an indication of an indirect inducement within the meaning of the prohibition on the passing on of special allowances, as these inducements will regularly be made on the basis of economic relationships between the intermediary/third party and the insurance undertaking.

c) Limited-time premium reductions as an inducement

12 The prohibition on the passing on of special allowances covers any “direct or indirect inducement in addition to the benefit agreed in the insurance contract”, whereby an inducement may also consist of granting a rebate (see section 48b (2) no. 3 of the VAG).

13 In particular, a rebate in the form of a reduction of premiums (reduction or exemption) may also be considered. This is only permissible if it is of low value (section 48b (2) of the VAG) or permanent (section 48b (4) of the VAG) (see margin no. 14 et seq. and margin no.28 et seq.).

2. Low value clause, section 48b (2) of the VAG

14 Pursuant to section 48b (2) of the VAG, an inducement only constitutes a special allowance if it is not of low value.

a) Section 48b (2) sentence 1 of the VAG – existing insurance contract

15 In accordance with the provision of section 48b (2) sentence 1 of the VAG, BaFin interprets that, under an existing contract, the value per calendar year may be

- up to EUR 15 or
- up to 5% of the annual premium,

provided that these benefits take the form of benefits in kind or services (e.g. calendars, meal invitations, concert tickets, stadium tickets). In order to avoid a contradiction with the exemption of the permanent reduction of premiums regulated in section 48b (4) sentence 1 of the VAG, the up to EUR 15 or 5% of the annual premium may not be paid out as cash or “cash equivalent” (cheques and vouchers, for example, are also considered as cash equivalent), but must be provided in the form of benefits in kind or services.

b) Section 48b (2) sentence 2 of the VAG – inducements for initiating or upon concluding a contract

16 According to the wording of section 48b (2) sentence 2 of the VAG, rewards or gifts for initiating or concluding a contract are deemed to be of low value to the extent that they do not exceed a total value of EUR 15 per insurance relationship and calendar year.

17 Even though the wording of section 48b (2) sentence 2 of the VAG (only) refers to “rewards or gifts”, in BaFin’s opinion it covers all inducements. BaFin also understands the provision to mean that a low-value inducement can be promised or granted either to initiate a contract or on the occasion of the conclusion of a contract, i.e. an inducement “for initiating a contract” and an inducement “upon concluding a contract” cannot be promised or granted at the same time.

18 The terms “initiating (a contract)” and “concluding a contract” are to be interpreted in such a way that the promise/granting of an inducement as part of “initiating a contract” does not result in the conclusion of a contract. In contrast, a contract is concluded in the case of an inducement that is promised or granted “upon concluding a contract”.

19 The limit of EUR 15 in section 48b (2) sentence 2 of the VAG is to be seen as a special regulation for the conclusion of an insurance contract, among other things. According to BaFin’s understanding, sentences 1 and 2 can be applied in parallel, so that a low-value inducement based on sentence 1 can be granted within the framework of a (future) existing contract in addition to an inducement upon concluding a contract in accordance with sentence 2.

20 BaFin originally commented as follows under point 4 e in the guidance notes to the Circular 11/2018 – Insurance Distribution:

“If an annual inducement, multiplied by the fixed minimum contract term, is expressly granted upon conclusion of the contract, this is compatible with the low value clause. This follows from the wording in section 48b (2) sentence 2 of the VAG “EUR 15 per insurance relationship and calendar year”.

21 BaFin is changing its interpretation in this regard as follows: According to the wording, the inducement relates to the initiating or concluding of the contract and may therefore (initially) “only” relate to the calendar year in which the contract is concluded – at least as far as the granting (realisation) of the inducement is concerned.

22 In addition, an inducement of EUR 15 may be promised/granted for each additional calendar year in which the insurance relationship exists upon concluding a contract. However, the inducement may only be paid/realised in the current calendar year and not in advance for several years. This is intended to prevent inappropriate incentives. It also provides a practicable solution for cases in which an insurance contract ends before the agreed term, for example due to revocation or cancellation in the event of loss/damage.

23 With regard to section 1a (3) of the German Insurance Contract Act (Versicherungsvertragsgesetz – VVG), BaFin expects that in the case of advertising measures relating to an inducement of more than EUR 15 upon concluding a contract, a clear indication will be made that (so far as promised/granted) the inducement will only be paid out “bit by bit” in later calendar years if the insurance contract is still in force at that time.

24 In summary, in BaFin’s opinion the following inducements are possible:

– “For initiating a contract” or “upon concluding a contract”: up to EUR 15.
Inducements of up to EUR 15 per insurance relationship and calendar year may be promised “upon concluding a contract”. However, the inducement may only be paid out/realised in the current calendar year and not in advance for several years.

– In the case of an existing contract, the value may be

o up to EUR 15, or
o up to 5% of the annual premium.

For further requirements, see margin no. 15.
In BaFin’s opinion, inducements within the framework of an existing contract are possible in addition to the inducements listed “upon concluding a contract” under the conditions specified.

c) Parallel inducements by insurance intermediaries

25 In practice, especially when working with insurance brokers, it may not be possible for the insurance undertaking to determine whether the intermediary also grants an inducement within the scope of the low value clause. However, due to the wording of the law in section 48b (2) of the VAG, it is generally permissible for an intermediary and an insurance undertaking to make parallel payments. Therefore, a low-value inducement of EUR 15 each (by the intermediaries and the insurance undertakings) per insurance relationship and calendar year is permissible, for example, upon concluding a contract.

26 However, this does not apply if the inducement from the insurance intermediary is at the same time an indirect inducement from the insurance undertaking (see margin no. 10 f. above). In such a case, a “parallel” direct inducement by the insurance undertaking is not permitted.

III Section 48b (3) of the VAG

27 Section 48b (3) of the VAG generally exempts the granting of commissions to policyholders who are also intermediaries of the insurance undertaking concerned from the prohibition on the passing on of special allowances, as the protective purpose of the provision is not affected here (see the explanations in Bundestag printed paper 18/11627, page 40). In BaFin’s opinion, this provision does not require any particular explanation.

IV. Permanent increase of benefits or reduction of premiums and pass-through provision on crediting customers with commissions included in premiums, section 48b (4) of the VAG

28 Section 48b (4) of the VAG stipulates that the prohibition on the passing on of special allowances does not apply if the special allowance benefits the insurance relationship in the long term, as this does not create any inappropriate incentive for the consumer.

a) “Permanence”

29 According to the exemption in section 48b (4) sentence 1 of the VAG, a special allowance is permissible if it leads to a permanent increase of benefits or reduction of premiums for the intermediated contract. BaFin considers it necessary for the insurance contract to be adjusted accordingly by agreeing to the increase of benefits or reduction of premiums for the entire life of the contract. The permanent increase of benefits or reduction of premiums must therefore also apply in the frequent case that a contract (that has not been terminated) is “automatically” renewed from year to year (section 11 (1) of the VVG). In contrast, it is not sufficient if the increase of benefits or reduction of premiums only applies until the time when a termination is possible. If, for example, the increase of benefits or reduction of premiums only applies for one year, whereby the policyholder can terminate the insurance contract at the end of the first insurance year and could thus withdraw from the contract, there would be no “permanent reduction of premiums” within the meaning of section 48b (4) sentence 1 of the VAG. Otherwise, i.e. in the case of a reduction of premiums that only applies to the first insurance year, there would be an inappropriate incentive to conclude an insurance contract. An inadmissible inappropriate incentive can only be ruled out if the policyholder benefits from the special allowance on a permanent basis as part of the contract concluded. In addition, the prohibition on the passing on of special allowances expressly intended by the legislator would be watered down too much.

b) Special allowance by an insurance intermediary

30 In BaFin’s opinion, the complete or partial surrender of a commission received by an insurance intermediary does not fulfil the requirements of section 48b (4) sentence 1 of the VAG even if it is only agreed between the insurance intermediary and the policyholder that it is used to “permanently reduce the premiums”. Such an agreement with the insurance intermediary is legally and factually independent of the insurance contract and therefore, in BaFin’s opinion, not suitable to justify a permanent reduction of premiums in the relationship between the policyholder and the insurance undertaking. Rather, a permanent reduction of premiums pursuant to section 48b (4) sentence 1 of the VAG always requires a corresponding agreement under civil law between the insurance undertaking and the policyholder due to its wording.
This also corresponds to the intention of the legislators to firmly establish the prohibition on the passing on of special allowances in the VAG with legal certainty. If an agreement between an insurance intermediary and a policyholder alone were sufficient for a permanent reduction of premiums, the prohibition on the passing on of special allowances in relation to insurance intermediaries would be largely ineffective. By including the insurance undertaking and expressly amending the insurance contract, on the other hand, it is to be expected that the customer can rely on receiving the reduction of premiums in a legally secure manner on a lasting basis, without having to bear the credit risk of the intermediary.

c) Bundled product rebates or rebates for existing customers

31 Reductions on other existing insurance contracts, however, are permitted, for instance:
When an insurance contract is concluded, the customer does not receive an increase of benefits or a reduction of premiums for the contract just concluded, but for another insurance contract already existing with the insurance undertaking (“bundled product rebate or rebate for existing customers”). The granting of a rebate (e.g. when concluding a new insurance contract for all existing insurance contracts of the same customer) constitutes a change to the existing insurance contracts. Such a rebate is therefore within the scope of the wording of section 48b (4) sentence 1 of the VAG, which refers to a permanent reduction of premiums of the contract concerned. A broking act is carried out insofar as the existing insurance contracts are changed with regard to the premium. In this case too, the permanent increase of benefits or reduction of premiums must be implemented by means of a corresponding civil law agreement concerning the insurance contract.

d) Special principles of equal treatment

32 Section 48b (4) sentence 2 of the VAG clarifies that the special principles of equal treatment provided by law for life insurance, substitutive health insurance and accident insurance with premium refunds as well as the principle of equal treatment for mutual societies with variable additional payment liabilities remain unchanged (see Bundestag printed paper 18/11627, page 40). In BaFin’s opinion, this provision does not require any particular explanation. A permanent increase of benefits or reduction of premiums must also be measured against these special principles of equal treatment.