Insurance and reinsurance in Germany: overview
A Q&A guide to insurance and reinsurance law in Germany.
The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in Germany.
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This Q&A is part of the global guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-guide.
Market trends and regulatory framework
Banks, financial institutions and insurers have been considering use cases for smart contracts, and the technology that typically underpins them (so-called "block chain" technology) across wide areas of business operations, including in relation to issuing and transferring securities, post-trade processing, syndicated lending, trade finance, swaps, derivatives, foreign exchange and potentially anywhere where counterparty risk arises.
Insurers are considering the potential use of smart contracting, initially for more simple policies, for example, using smart contracts for flood or crop policies where automated claims payments are linked to a weather data feed or water level monitor. For now, smart contracting is confined to simple insurance risks where pre-contractual disclosures are not required. However, automated claims linked to block chain technology significantly reduce the risk of fraudulent claims, with reduced administrative costs for the insurer and advantages for underwriters. With data fed into such technology, premium levels can be adjusted automatically in response to certain pre-determined events or information received.
Reinsurers from third countries, (that is, countries which are not a member state of the European Union (EU) or the European Economic Area (EEA)), have been affected by a significant change in the German Insurance Supervisory Act, which was effective from 1 January 2016.
Third country reinsurers are, basically, subject to an authorisation and must establish a German branch office if they wish to carry on a primary insurance or reinsurance business in Germany pursuant to section 67, para 1 of the German Insurance Supervisory Act. It is not permitted to establish a branch in Germany and conduct reinsurance business in Germany without an authorisation by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) BaFin.
These requirements do not apply if the third country reinsurers carry on solely reinsurance business in Germany through the provision of cross-border services and if the European Commission has decided that the solvency regimes for reinsurance activities carried out by undertakings in the relevant country are equivalent to the Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive) regime. The European Commission has decided that the solvency regimes for reinsurance activities carried out by undertakings in the relevant country are equivalent to the Solvency II regime regarding Switzerland, Bermuda and Japan. In this context, pursuant to BaFin's recent circular dated 31 August 2016, third country reinsurers are not permitted to conclude and perform contracts with German clients where there is no involvement of a German branch of that third country reinsurer, but involving a branch of the third country reinsurer established in another member state of the EU or EEA area, or another third country.
An exception with respect to the requirement for the authorisation and establishment of a branch office in Germany also applies where the conditions of the instrument "insurance by correspondence" are met. This will apply if, at the instigation of an undertaking domiciled in Germany, a reinsurance contract is concluded by correspondence with a third country reinsurer without one of the parties being assisted by a professional intermediary in Germany, or a professional intermediary domiciled abroad but acting as intermediary in Germany. Any communication with such a reinsurer has to be made by letter, e-mail, fax or telephone call.
BaFin stated in its recent circular dated 31 August 2016 that carrying on a reinsurance business in Germany does not only include the execution of legal transactions, but also the main steps leading up to signing the contract as well as the performance of the contract. The decisive element is whether the third country reinsurer deliberately targets the German market (for example, through the advertisement of specific products, an internet presence targeted at the German market, or employees of the third country reinsurer visiting customers with the aim of concluding reinsurance contracts) in order to offer reinsurance contracts to German insurers or to initiate such business.
The provisions of section 67 ff. of the German Insurance Supervisory Act applicable to third country reinsurers came into force on 1 January 2016. In its circular dated 30 August 2016, BaFin stated that reinsurance contracts entered into on or before 31 December 2015 can be executed and run-off without authorisation. However, if the renewal of a reinsurance contract between a German insurer and a third country reinsurer requires a contractual agreement between the parties (in particular regarding key elements such as the scope of cover or premiums), reinsurance contracts concluded on or after 1 January 2016 are subject to authorisation (section 67, para 1, sentence 1, German Insurance Supervisory Act) or exemption (section 67, para 1, sentence 2, German Insurance Supervisory Act). This must be taken into account for the annual renewals of reinsurance contracts.
In the event that a third country reinsurer carries on reinsurance business in Germany without having obtained the required authorisation, BaFin can, among other things, stop the business operations with immediate effect and wind-up the insurance business conducted. Furthermore, the operation or commencement of reinsurance business without the authorisation required under section 67, para 1, sentence 1 of the German Insurance Supervisory Act, is considered a criminal offence punishable with imprisonment, regardless of whether the lack of authorisation is due to intent or negligence (section 331, para 1 and 3, German Insurance Supervisory Act).
Insurance and reinsurance activities are mainly regulated by the German Insurance Supervisory Act, which contains provisions for, among other things, the licensing, continuous supervision, as well as liquidity and competency requirements for insurance providers. Against the background of the implementation of the Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive) in German law, the German Insurance Supervisory Act has been amended with effect from 1 January 2016. The provisions of the German Insurance Supervisory Act have to be construed in accordance with the Solvency II Directive. Furthermore, the provisions of the Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing the Solvency II Directive are applicable directly in Germany.
Insurance contracts (except for reinsurance contracts) are governed by the Insurance Contract Act.
Insurance and reinsurance undertakings situated in Germany are supervised by the Federal Financial Supervisory Authority (BaFin). Insurance undertakings, which have their registered office in another EU member state or in a state party to the Agreement on the European Economic Area (EEA), and which conduct business in Germany under the freedom to provide services are primarily subject to supervision by their home country. But BaFin may identify breaches of general German legal principles and consult the home state regulator. The local Chambers of Trade and Commerce (Industrie- und Handelskammer) are responsible for licensing and overseeing insurance intermediaries.
Regulation of insurance and reinsurance contracts
There is no statutory definition of an insurance contract. However, in numerous decisions, dating back as far as 1964, the German Federal Court held that an insurance agreement exists if the following requirements are satisfied:
A business promises, for value, to render a certain performance if an uncertain agreed event occurs.
The assumed risk is spread among numerous persons who are subject to the same risk.
The assumption of the risk by the insurer is based on calculations following the law of large numbers.
The assumption of the risk is the primary obligation under the agreement.
Section 1 of the Insurance Contract Act provides that an insurer promises, with the entering of the insurance contract, to cover a certain risk in case the insured event occurs, and the policyholder is obliged to pay the agreed premium.
Reinsurance is generally understood as an insurance of the risks assumed by a primary insurer or reinsurer. However, there is also no statutory definition under German law. The policyholder of the primary insurer has, basically, no direct claim against the reinsurer.
Almost all insurance agreements are regulated by the Insurance Contract Act. However, reinsurance agreements and marine insurance agreements are exempted under section 209 of the Insurance Contract Act.
Even where a contract might contain provisions similar to insurance, the contract is not regulated by the Insurance Contract Act if one of the criteria set out by the Federal Court of Justice is not met (see Question 3). For example, if a car salesman was to include a provision in his purchase agreements under which he would cover the costs for any repair and maintenance in case of an accident during the first three months, this would not constitute automobile insurance, as the assumption of the risk of accident would not be the primary obligation of the salesman.
Under section 7 of the Insurance Supervisory Act, insurers can be organised as:
Stock corporations (Aktiengesellschaft) (AG) including European companies (Societas Europea) (SE).
Mutual insurance associations (Versicherungsverein auf Gegenseitigkeit) (VVaG).
Public law entities (öffentlich-rechtliche Versicherungsunternehmen).
Regulation of insurers and reinsurers
All insurers and reinsurers are regulated. However, the regulations for reinsurers are less strict as they have no direct contact with consumers in need of legal protection, and the German legislator therefore saw less need for regulation. Therefore, only certain regulations of the German Insurance Supervisory Act, and none of the Insurance Contract Act, apply to reinsurers.
For certain insurers organised as public law bodies and operating exclusively within the confines of a single federal state, regulation on the level of federal state law applies, although those are almost identical to the Insurance Supervisory Act.
Pursuant to section 8, paragraph 4 and section 15 of the German Insurance Supervisory Act, insurers and reinsurers, respectively, are not allowed to carry on non-insurance business unless such business is directly related to insurance business, for example, investment and asset management.
Insurers offering life insurance or private health insurance are excluded from offering any other type of insurance pursuant to section 8, paragraph 4 of the German Insurance Supervisory Act. Moreover, although an insurer can seek permission from the Federal Financial Supervisory Authority (BaFin) to conduct insurance business in general (see Question 9), if the application is limited to certain types of insurance, a licence would be limited to those types of insurance.
A reinsurer may solely conduct reinsurance business but not any direct insurance business.
There are no statutory limits on the transfer of risk. However, where insurance portfolios are transferred in part or in their entirety from one German insurer or reinsurer to another, the transfer has to be approved by the Federal Financial Supervisory Authority (BaFin) pursuant to section 13, 166 of the German Insurance Supervisory Act. The approval of the portfolio transfer from one German insurer to another has to be granted by BaFin if the interests of the insured are kept and the obligations from the insurance contracts are detailed as permanently satisfactory (there is no assumption of a negative impact on these obligations). The portfolio transfer agreement requires written form. The approval of BaFin has to be published in the Federal Gazette.
Authorisation or licensing
Under section 8 of the German Insurance Supervisory Act, any undertaking must obtain a permit from the Federal Financial Supervisory Authority (BaFin) in order to conduct insurance business. Together with the application form BaFin must be provided, among other things, with a business plan pursuant to section 9 of the German Insurance Supervisory Act containing information about the undertaking's ability to fulfil its obligations as a prospective insurer, including but not limited to:
A planned balance sheet, a planned profit and loss statement.
An estimate of the solvency capital requirements and minimum capital requirements.
Estimates regarding the funds to cover the reserves, solvency capital requirements and minimum capital requirements.
Details of the line of business and the risks covered.
Estimates regarding the premiums and insurance payments.
Furthermore, details of the organisation of the business, including but not limited to the fit and proper requirements regarding the managers, members of the supervisory board, the responsible actuary and any outsourcing agreements have to filed with the application form.
If the undertaking aims to conduct private health insurance business, the General Terms and Conditions of Insurance (Allgemeine Versicherungsbedingungen) and the calculation principles used for the determination of the insurance premiums, have to be provided. Where the undertaking wishes to conduct compulsory insurance, the General Terms and Condition of Insurance have to be filed with the application form.
Insurance intermediaries (and reinsurance intermediaries) must, in principal, be licensed by the relevant Chamber of Trade and Commerce (IHK). The licence can be granted to individuals and legal entities. Under section 34d, paragraph 2 of the Trade Regulation Code, the licence must not be granted, if, inter alia:
The applicant was convicted of a felony (Verbrechen) or certain property crimes within the last five years.
Insolvency proceedings have been initiated against the applicant.
The applicant cannot provide proof of professional liability insurance.
The applicant has not passed an exam offered by the Chamber proving she or he has the requisite expertise to operate as an intermediary.
Where licence is sought by a legal entity, the first three requirements must generally be fulfilled by the managing directors and operators. The exam does not have to be taken by all of the intermediary's employees but at least by a sufficient number of employees with the authority to supervise non-examined personnel.
The German Trade Regulation Code regulates whether insurance intermediaries need authorisation for their activities (section 34d, Trade Regulation Code). The responsible body is the local Chamber of Industry and Commerce.
Other providers of insurance/reinsurance-related activities
The following providers are not insurance intermediaries:
Insurance consultants (section 59, paragraph 4, Insurance Contract Act) require separate authorisation from the Chamber of Industry and Commerce pursuant to section 34e of the Trade Regulation Code. Further licensing requirements can, of course, arise from the nature of the provided activity, for example, banking licences for financial service providers.
Insurance providers who have already been licensed in a member state of the European Economic Area (EEA) and wish to, either directly ("passporting") or through a branch, conduct insurance business in Germany, do not need to apply for a licence from the Federal Financial Supervisory Authority (BaFin) but must notify their own competent supervisory authority of their intent. The supervisory authority will then provide BaFin with certain information regarding the insurer. Once BaFin has informed the insurer that it has received the relevant information, the insurer can conduct business in Germany unless the insurer wishes to conduct business through a branch, in which case a two month waiting period after BaFin has been provided with the relevant information must be observed.
The Trade Regulation Code makes a distinction between activities for which authorisation is mandatory and those which are exempt from this requirement. The following distinctions are significant in practice:
Product-accessory intermediaries. Mediation activities are exempt from authorisation if these involve mediating insurance that is being provided as an additional service to the delivery of goods or services, and if all other requirements of section 34d, paragraph 9 of the Trade Regulation Code are met. This type of insurance is therefore also known as "product accessory" insurance. An example of this includes an extension to a term of warranty when purchasing technical equipment.
Tied intermediaries. The activities of "tied" insurance intermediaries under section 34d, paragraph 4 of the Trade Regulation Code are also exempt from authorisation. Before intermediaries take up their activity, the insurer, on whose behalf the intermediary is to act on an exclusive basis, must check the intermediary's compliance with the fit and proper requirements and other prerequisites in accordance with commercial law criteria. If all prerequisites are met, the tied insurance intermediary will be registered by the insurer in 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) (www.vermittlerregister.info or www.vv-register.de).
Insurance brokers und insurance agents. Insurance brokers and insurance agents on the other hand need authorisation for their activities (section 34d, paragraph 1, Trade Regulation Code). The fit and proper requirements and other criteria are reviewed by the Chamber of Industry and Commerce in accordance with the law of the respective federal state. If the review is successful, the insurance broker or agent receives an authorisation certificate from the Chamber of Industry and Commerce and is entered into the register of insurance intermediaries and consultants kept by the DIHK.
Other providers of insurance/reinsurance-related activities
There are no specific exemptions from the authorisation requirements provided for in section 34e of the Trade Regulation Code.
Restrictions on ownership or control
Under section 16, in connection with section 7, No 3 of the German Insurance Supervisory Act, holders of at least 10% of the equity interests or voting rights in an insurer must fulfil the requirements necessary for the reasonable and prudent management of an insurance company and be trustworthy. If those interests are held by legal entities, the requirements apply to their legal representatives.
There are no specific regulations regarding foreign investment in insurance companies. The general provisions of the Foreign Trade Act (Außenwirtschaftsgesetz) (AWG) apply.
No restrictions apply to the ownership or control of intermediaries.
Other providers of insurance/reinsurance-related activities
No restrictions apply to the ownership or control of the providers of other insurance or reinsurance-related activities.
Under section 17, paragraph 1 of the Insurance Supervisory Act, any person or entity intending to acquire at least 10% of the equity interests or voting rights in an insurance company (that is, the controlling interest) must notify the Federal Financial Supervisory Authority (BaFin) of such intention. Moreover, if a holder of more than 10% of the equity interests or voting rights intends to increase its holding beyond a 20%, 30% or 50% threshold, BaFin must also be informed. BaFin has 60 days to review the notification and to issue an order denying the contemplated acquisition. The period may be longer if additional information is requested.
Reducing control below the threshold of a controlling interest is not subject to approval by BaFin. However, the holder of the interest must inform BaFin of his intentions without undue delay.
No provisions regulating the acquisition of control or ownership in an insurance/reinsurance intermediary exist.
Other providers of insurance/reinsurance-related activities
No provisions regulating the acquisition of control or ownership in a provider of insurance/reinsurance-related activities exist. However, where the provider is a credit or financial services institution, similar provisions to the ones regarding insurers/reinsurers might apply under the Bank Regulation Act (Kreditwesengesetz) (KWG).
Ongoing requirements for the authorised or licensed entity
Under section 291 of the German Insurance Supervisory Act, all insurers are subject to the continuous legal and financial supervision by the Federal Financial Supervisory Authority (BaFin), in order to ensure that the insurer complies with the law, is solvent and continues to be able to fulfil its obligations.
BaFin has substantial powers in order to fulfil its supervisory duties, set out in section 291 et seq of the German Insurance Supervisory Act. In this regard, BaFin can issue all orders which are appropriate and necessary to rectify deficiencies. Such orders can be issued to insurers, members of an insurer's management board or other management members, or to persons or entities controlling insurers. Moreover, BaFin can:
Order a change of the insurer's business plan.
Determine a surcharge to the solvency capital requirements.
Request the dismissal of management members or prohibit management members from continuing their work.
Instruct the insurance/reinsurance entity to relinquish any interest it holds in an entity not supervised by the Federal Financial Supervisory Authority, if it finds that the holding of such interest is detrimental to the insurer's ability to fulfil all obligations as an insurer.
Pursuant to section 216 of the German Insurance Supervisory Act, the supervised entities, together with the annual financial statement and the management report, has to report to BaFin the calculation of the solvency capital requirement and to verify the own funds.
Under sections 8 to 10 of the Insurance Intermediary Regulation (Versicherungsvermittlungsverordnung) and section 34d of the Trade Regulation Code, intermediaries must be covered by liability insurance valid for the entire European Economic Area (EEA), and covering damages of at least EUR1.13 million per event and EUR1.7 million per year.
Other providers of insurance/reinsurance-related activities
Other providers do not have to comply with any ongoing requirements. However, under section 32, paragraph 2 of the German Insurance Supervisory Act, in cases where a licensed insurance company outsources central functions of its business or enters into an agreement with a service provider, it has to ensure the proper conduct of the outsourced function, the control of the management board and effective risk management, as well as supervision by BaFin. Moreover, the outsourcing of such functions must be reported to BaFin pursuant to section 47, No 8 of the German Insurance Supervisory Act.
Penalties for non-compliance with legal and regulatory requirements
The Federal Financial Supervisory Authority (BaFin) can issue all orders which are appropriate and necessary to rectify deficiencies, including:
Ordering a change of the insurer's business plan.
Requesting the dismissal of management members or prohibiting management members from continuing their work.
Determining a surcharge to the solvency capital requirements.
See Question 13.
Moreover, if insurers or reinsurers do not comply with applicable law, BaFin can, in many circumstances, order the payment of civil fines (Bußgelder) against management members of the insurer. Fines can be up to EUR50,000 or, in some cases, EUR100,000. For severe violations, the responsible persons may also be subject to criminal liability. In severe cases, the insurer's licence may also be revoked.
In the event that a third country insurer or reinsurer carries on (re)insurance business in Germany without having obtained the required authorisation, BaFin can, among other things, impose the cessation of the business operations with immediate effect and the winding-up of the insurance business conducted. Furthermore, the operation or commencement of insurance or reinsurance business without the authorisation required under section 67, para 1, sentence 1 of the German Insurance Supervisory Act, is considered a criminal offence punishable with imprisonment (section 331, paras 1 and 3, German Insurance Supervisory Act), regardless of whether the lack of authorisation is due to intent or negligence. A policyholder who has entered into an insurance contract with an insurer operating without a licence can claim damages suffered and/ or challenge the insurance contract. When the contract is challenged it is void retroactively and therefore the policyholder can claim the premiums paid.
Under section 144 of the Trade Regulation Code, it is a civil violation (Ordnungswidrigkeit) to mediate insurance or reinsurance policies without having a licence required under section 34d, paragraph 1 of the Trade Regulation Code. Fines of up to EUR5,000 may be imposed.
The local Chambers of Trade and Commerce (Industrie- und Handelskammer) responsible for the regulation of insurance intermediaries can supervise insurance intermediaries and can also revoke licences of insurance intermediaries in case of significant violations.
Under section 48 of the German Insurance Supervisory Act, it is also illegal for insurers to work together with insurance intermediaries operating without a required licence or without complying with the further requirements set out above.
Other providers of insurance/reinsurance-related activities
With respect to other providers of insurance-related activities such as insurance consultants and referral agents, no specific requirements are applicable. However, BaFin expects the insurers to enter into a written agreement with the referral agent if the co-operation between the insurer referral agent is of a regular nature. The referral agent agreement should specify the referral agent's obligation to obtain, for instance, an authorisation for a sideline activity pursuant to the statutory requirements before the commencement of the co-operation, and to submit this to the insurance undertaking. The referral agent agreement should contain data protection clauses or fact sheets informing the referrer of important data protection aspects. If the insurance undertaking has not concluded any agreements with referral agents, the insurer's distribution partners should be obliged to observe the minimum requirements with regard to their co-operation with referral agents.
Restrictions on persons to whom services can be marketed or sold
Reinsurance monitoring and disclosure requirements
The provisions in the German Insurance Supervisory Act do not contain any obligations or rights concerning the monitoring of the cedant. Any rights are therefore individually agreed upon between reinsurer and reinsured. Contractual provisions obliging the primary insurer to report any losses and to seek approval of any settlements with insured parties, as well as providing the reinsurer with the right to audit the reinsured, are common. But in particular data protection related issues have to be considered when entering in the reinsurance contract which obliges the reinsured to disclose information about the policyholder or a claim.
No legal provisions exist. Any obligations are contractually agreed upon between the reinsurer and cedant. See Question 16.
Insurance and reinsurance policies
Content requirements and commonly found clauses
Form and content requirements
Under section 3 of the Insurance Contract Act, the insurer must provide the policyholder with an insurance policy in text form, that is, the policy must either be provided in a digital manner (for example by e-mail or on a disk) or in paper form (including fax). On the request of the policyholder, the policy must be provided as certificate.
Pursuant to section 7, paragraph 1 of the Insurance Contract Act, the insurer must provide the contractual provisions, including the general insurance terms and conditions, as well as specific information before the policyholder submits its declaration to enter into an insurance agreement. The detailed information that needs to be provided to the policyholder are set out in the Insurance Contract Act Information Regulation (Informationspflichtenverordnung). These requirements are not limited to insurance agreements with consumers.
There is an exception that the contractual provisions do not need to be provided prior to the conclusion of the policy if:
The agreement, on the request of the policyholder, is entered into by phone or through a communication method which does not allow for the transfer of the contractual terms in text form.
The policyholder waives his right in writing.
However, the policyholder has to be provided with the required information subsequent to the conclusion of the insurance contract without undue delay.
The former exception may apply for telephone sales in which the agreement is already entered into during the telephone call. The latter exception requires a separate waiver declaration which is signed by the policyholder. Therefore, this exception is of limited relevance as the information then could be provided to the policyholder at the same time.
There remain some legal uncertainties for online sales. For example, it is unclear whether it is sufficient for the insurer to provide the contractual terms online for download by the policyholder, or whether the insurer must actually make sure that the contractual terms are downloaded by the policyholder prior to entering into the insurance agreement.
Commonly found clauses
Most German insurance contracts contain standardised terms and conditions. Therefore, clauses are quite identical from contract to contract, in particular with respect to standard contracts with consumers such as property, health, life insurance and third party liability insurance.
Many insurers rely on terms and conditions provided by the German Insurance Association (Gesamtverband der Deutschen Versicherungswirtschaft eV) which is an association comprised of about 460 insurance undertakings. In particular, insurance agreements with consumers typically contain these standardised terms and conditions, often with additional riders setting out variations from the terms provided by the German Insurance Association.
For the German market, treaty reinsurance is the most common type.
Commonly found clauses
Standard or even common clauses are quite rare for reinsurance contracts in Germany, as they are not governed by the Insurance Contract Act and are entered into by highly specialised entities interested in a tailor-made contract. Nevertheless, common clauses for reinsurance contracts include clauses barring the reinsurer from interfering in the conduct of business of the cedant, provided the cedant applies the same standard of diligence to its reinsured business as if it had not reinsured the risks, and clauses requiring the reinsurer to accept the claim settlements made by the cedant, as long as there is no evidence of fraud, collusion, or bad faith (so-called "follow-the-fortunes" clause). Also "change of control" clauses, triggering a termination right of the reinsurer if control of the insurer changes, are common.
The provisions of the Insurance Contract Act are applicable to all insurance contracts, with the exception of reinsurance contracts and marine insurance contracts. As a general rule, the provisions of the Insurance Contract Act are part of any insurance contract, unless the parties agree to exclude a provision or agree to a clause differing from the provision of the Insurance Contract Act. However, some provisions in the Insurance Contract Act, in particular significant provisions against the background of the protection of the policyholder, must not be amended to the detriment of the policyholder. For example, under section 18 of the Insurance Contract Act certain provisions, in particular the provisions regarding the right of the insured to revoke the contract within 14 days, cannot be excluded or amended.
The same principle applies to provisions of the Civil Code. The Civil Code governs, among other things, time-barring, liability, the right of withdrawal and so on. If these are not expressly excluded, those provisions are part of the contract by implication.
The customer protection provisions of the Civil Code apply in whole to insurance contracts. As most insurance contracts contain general terms and conditions, or standardised terms, the provisions concerning general terms under sections 305 et seq. of the Civil Code apply. Under these provisions, any clauses of the general terms and conditions that diverge from statutory provisions to the detriment of the party accepting the terms are void.
The provisions of the Civil Code are supplemented by provisions in the Insurance Contract Act, for example by sections 8 and 14 of the Insurance Contract Act. Under section 8, the insured can revoke the contract within 14 days of receiving an insurance certificate, the policy terms and the further information to be provided (see above) as well as a notice that clearly and expressly notes the right and legal consequences of the policyholder's right of revocation. If such a notification is missing or not worded clearly, the right of revocation does, basically, not expire until the policyholder has obtained knowledge of this right and has shown by conduct a commitment to the insurance agreement (for example, by continuing to pay the insurance premium after knowledge was obtained). Section 14 of the German Insurance Supervisory Act contains specific provisions regarding the due date for the payment of an insurance benefit.
Insurance policies normally do not contain clauses granting further customer protection. However, clauses limiting the insurer's right to withdraw from the contract if the insured neglected to disclose any circumstances increasing the insured risk, to cases where the disclosure was withheld wilfully with intent or with malice, are not entirely uncommon.
Standard policies or terms
Standardised terms and conditions for insurance contracts are provided, and regularly updated, by the German Insurance Association (Gesamtverband der Deutschen Versicherungswirtschaft eV) on its website. The terms and conditions are tailored to specific types of insurance and are widely applied in consumer insurance contracts, but are also used for certain commercial insurance agreements. It is common that the insurance contract contains the standard terms provided by the German Insurance Association and a rider with additional terms setting out variations from the terms provided by the German Insurance Association.
Insurance and reinsurance policy claims
Establishing an insurance claim
Under section 30 of the Insurance Contract Act, in order to successfully establish a claim under the insurance policy, the policyholder must inform the insurer about the occurrence of the insured event without undue delay. If the insurance agreement is for the benefit of a third party, the third party must also inform the insurer.
Under section 31 of the Insurance Contract Act, once notification has been made, the insurer can request from the policyholder all information necessary to determine the occurrence of the insured event, and the insurer can request documentation to the extent that it would be reasonable for the policyholder to obtain such documentation. If a third party has rights under the insurance agreement, the same applies to such third party.
Third party insurance claims
Insurance contracts entered into for the benefit of a third party, with or without the disclosure of the insured person, are possible under section 43 of the Insurance Contract Act. In case of occurrence of the insured event, the rights against the insurer arise directly in the person of the third party.
Under certain circumstances, injured persons can also seek direct recovery of damages from the liability insurer of an injuring person pursuant to section 115 of the Insurance Contract Act. This is the case in motor vehicle liability insurance matters, if insolvency proceedings have been opened with regard to the assets of an insured person, or if the residence of the insured person is unknown.
The time-barring of insurance claims is governed by section 195 of the Civil Code (BGB). Any insurance claims become time-barred after three years. The period commences at the end of the year in which the claim arose and the party obtained knowledge of the circumstances underlying the claim, or should have obtained such knowledge if not for gross negligence. Regardless of the knowledge of the insured person, the claim becomes time-barred after ten years from the year in which the claim arose.
If the insurer breaches the policy, the insured person can seek all remedies available at law. Usually, the insured person would seek damages against the insurer. The insurer can initiate a suit for a declaratory judgment that the insurer is liable under a policy. However, a preliminary injunction ordering the insurer to pay would only be issued under extraordinary circumstances (for example, in the case of a dispute regarding medical coverage if the insured person has a life-threatening illness and cannot pay for the medical treatment themselves).
Where the policyholder breaches an obligation under the insurance policy, the insurer can claim any damages suffered, for example, in case the policyholder does not pay the insurance premium. If a policyholder has violated disclosure obligations prior to the entering of an insurance agreement, the insurer can avoid the contract within one month after obtaining knowledge of the violation, pursuant to section 19 of the Insurance Contract Act, unless the policyholder can show that:
The disclosure violation was neither intentional nor grossly negligent.
In the event of gross negligence, the insurer would have concluded the insurance contract even if it had had knowledge about the non-disclosed information.
For obligations that do not concern payments to the insurer, for example, the obligation to notify the insurer about the occurrence of an insured event, remedies are often contractually agreed upon, and include the loss of rights by the insured or, in severe cases, the exemption of the insurer from his obligation to provide any payments to the policyholder or insured person, or a limitation of such payments.
Punitive damage claims
Punitive damages cannot be claimed under German law.
Liability insurance policies and product liability policies usually exclude liability coverage for punitive damages claimed against the policyholder in other jurisdictions. However, if a liability insurance policy provided coverage for punitive damages in other jurisdictions, such coverage would be lawful under German law. Moreover, it would be contractually possible to reinsure such risks under German law.
Insolvency of insurance and reinsurance providers
As with all entities, insurance and reinsurance companies are subject to the Insolvency Code (Insolvenzordnung) (InsO). However, the Insolvency Code is supplemented by certain provisions of the Insurance Supervisory Act. In contrast to the provisions of the Insolvency Code, the insurer/reinsurer cannot declare insolvency and request the opening of insolvency proceedings. Under section 312 of the Insurance Supervisory Act, the request must be made by the Federal Financial Supervisory Authority (BaFin), or the relevant supervisory authority if the company is based in another member state of the European Economic Area (EEA). The management board (Vorstand) of the insurer has to notify the supervisory authority immediately in case of insolvency or liabilities exceeding the assets, pursuant to section 311 of the Insurance Supervisory Act.
Under section 314 of the Insurance Supervisory Act if, during the course of its on-going supervision, BaFin becomes aware that an insurer is in danger of insolvency, BaFin can, among other things, order a change in the business basis or, to remediate the deficiencies, order a temporary stop of payments, including insurance benefits.
If the insurer notifying BaFin under section 311 of the Insurance Supervisory Act of its insolvency is a life insurer or health insurer, or BaFin becomes aware of the pending insolvency of such an insurer within the meaning of section 314, paragraph 1 of the Insurance Supervisory Act, the portfolio of the insurer can be transferred to a guarantee fund (Sicherungsfond) under section 222 of the Insurance Supervisory Act. All health and life insurers are obliged to be members of a guarantee fund. Under section 223 of the Insurance Supervisory Act, funds for health insurers and life insurers administrated by the Reconstruction Loan Corporation (Kreditanstalt für Wiederaufbau) (KfW) have been established.
With respect to entities providing insurance or reinsurance-related services, (that is, outsourced functions of an insurer or reinsurer), the insurance or reinsurance undertaking has to ensure that the services provided by the insourcer can be transferred to another service provider or may be re-implemented in the business organisation of the insurance or reinsurance undertaking without undue delay.
There are no special rules with regard to insurers. The possibility of a set-off against an insolvent entity is governed by the provisions of sections 94 et seq. of the Insolvency Act. In principle, a set-off is allowed if the circumstances leading to the set-off possibility arose prior to the opening of the insolvency proceedings, or if the set-off was not possible prior to the opening of the proceedings only because the claims to be set-off against were not yet due prior to the opening of the insolvency proceedings.
Taxation of insurance and reinsurance providers
Insurers, reinsurers and other persons or entities providing insurance and reinsurance-related services are subject to the general German tax rules.
With respect to insurance premiums there is a special insurance tax governed by the Insurance Tax Act (Versicherungssteuergesetz). The insurance tax is levied on insurance premiums and the insurer collects the tax rate together with the insurance premiums. The regular tax rate for most insurance types is 19%. Certain types of insurance are completely exempt, pursuant to section 4 of the Insurance Tax Act (for example, reinsurance, health insurance and life insurance).
Insurance and reinsurance dispute resolution
Under section 214 of the Insurance Contract Act, the German Ministry of Justice can recognise mediation organisations for disputes involving insurance agreements with consumers, and for claims made by a policyholder against an insurance intermediary or insurance consultant with regard to the mediation of insurance or consultation activities.
The two important mediation organisations are Ombudsmann Private Kranken und Pflegeversicherung for health insurance disputes and Versicherungsombudsmann eV for all other insurance types involving consumers. Versicherungsombudsmann eV is an association of many private insurers and the German Insurance Association (Gesamtverband der Deutschen Versicherungswirtschaft eV). With the Versicherungsombudsmann eV, 20,827 complaints were filed in 2015. The Versicherungsombudsmann eV may issue binding decisions against its members in an amount up to EUR10,000. However, decisions are not binding for policyholders and other insured persons.
Arbitration clauses in commercial insurance agreements are enforceable (see Question 35).
Choice of law provisions are valid if they comply with the limitations set out in Article 7 of Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I).
Section 215 of the Insurance Contract Act stipulates that law suits arising under an insurance agreement can be initiated in a court at the place of the policyholder's normal or habitual residence, and that complaints against a policyholder can only be filed with such a court. There is a considerable disagreement between commentators in the legal literature as to whether the provision applies to all policyholders or just to natural persons or solely to consumers.
To the extent that section 215 of the Insurance Contract Act does not apply, choice of venue provisions are generally possible subject to further restrictions on choice of venue clauses pursuant to European regulations and the German Code of Civil Procedure.
Directive 2016/97/EU on insurance distribution (Insurance Distribution Directive) regulates the activities of all distributors of insurance products, including:
Insurance companies and their employees.
Ancillary insurance intermediaries (such as travel agents or car rental companies).
The Insurance Distribution Directive determines the information that should be given to consumers before they sign an insurance contract, imposes certain conduct of business and transparency rules for distributors, clarifies the rules for cross-border business and addresses the supervision and sanctioning of insurance distributors if they breach the provisions of the Insurance Distribution Directive. It also includes additional requirements for the sale of insurance products with investment elements to ensure that insurance policyholders get a similar level of protection as buyers of other investment products regulated under Directive 2014/65/EU on markets in financial instruments (MiFID II).
The Insurance Distribution Directive was adopted on 20 January 2016. Member states will need to transpose it into national legislation by 23 February 2018. The new rules will apply to all insurance and reinsurance distributors covered by the Insurance Distribution Directive as from that date.
Main insurance/reinsurance trade organisations
German Insurance Association (Gesamtverband der Deutschen Versicherungswirtschaft) (GDV)
Main activities. The GDV is the umbrella organisation for private insurers in Germany and acts in the interest of its 460 members.
Association of Insurance Mutuals (Verband der Versicherungsvereine aG)
Main activities. The Association of Insurance Mutuals represents the interests of 160 insurance mutuals.
Association of Public Insurers (Verband öffentlicher Versicherer)
Main activities. The Association of Public Insurers is the umbrella organisation for the 11 public insurance groups.
Association of German Insurance Brokers (Verband Deutscher Versicherungsmakler) (VDVM)
Main activities. The VDVM represents the interest of more than 600 insurance broker companies.
Federal Financial Supervisory Authority (BaFin)
Description. The official website of BaFin is up to date and includes publications of interpretive decisions and guidance documents issued with respect to conducting re/insurance business in Germany, including links to relevant law provisions. The translations are for guidance only.
Insurance Supervisory Act
Description. The official website of the Insurance Supervisory Act maintained by the German Ministry of Justice. This might be out of date and is for guidance only. No English translations are available.
Insurance Contract Act
Description. Translation of the Insurance Contract Act, maintained by the German Ministry of Justice. This is an official website but might be out of date and is for guidance only. There is no official English translation.
Eva-Maria Barbosa, Partner
Norton Rose Fulbright LLP
Benjamin Köstler, Associate
Norton Rose Fulbright LLP
Professional qualifications. Rechtsanwalt
Areas of practice. Corporate Insurance and Insurance Regulatory.
Acting for Hyperion Insurance Group on two investments into brokers in Germany.
Advising W&W Group on the sale of its life and non-life risk carriers in the Czech Republic.
Advising EU and Non-EU carriers on the implementation and the consequences of Solvency II.
Advising Compre Group on the acquisition of German run-off specialist risk carrier HIR.
Languages. German, English