BaFin notice on insurance brokerage by group insurance policy­holders

In its judgment of 29 September 2022 (C-633/20) the CJEU ruled that legal persons whose activities consist of offering customers voluntary membership in return for a fee in a group insurance policy, the legal person took out previously from an insurance company, can be regarded as insurance brokers. In response to the CJEU’s judgment, the German financial regulator BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) published a regulatory notice together with the German Chamber of Commerce (IHK) on 4 July 2023. In the regulatory notice, BaFin and IHK examine specific cases in which the policyholder of a group insurance policy is to be classified as an insurance broker.

The CJEU judgement

Previously, it was the understanding of both BaFin and IHK that the policyholder of a group insurance policy could not be an insurance broker at the same time. It was argued that in a true group insurance structure there is only one uniform insurance contract and no individual contract is entered into between the various insured persons and the insurer.

The CJEU now ruled that the policyholder of a group insurance policy acts as an insurance broker if the following criteria are met cumulatively:

• The policyholder must receive a fee or pursue an own financial interest.
• Membership of the group insurance contract must be voluntary for the customers.
• The insured persons must have the right to claim insurance benefits from the insurance company.

Regulatory notice from BaFin and IHK

The CJEU ruling relates to all group insurance contracts, existing ones as well as new ones. In principle, according to BaFin and IHK the policyholder of a group insurance contract conducts insurance brokerage activities if the customer is offered to join the group insurance policy voluntarily and the business model is focused on generating profit. By contrast, there is deemed to be no insurance brokerage by the policyholder of a group insurance contract if the policyholder does not receive a fee (criterion of consideration) or joining the group insurance policy is not up to the discretion of the insured person (criterion of voluntariness).

Consideration

In the view of BaFin and IHK, the criterion of consideration is met if the financial interest is the primary focus and if it is the policyholder´s intention to make a profit. Pure reimbursement of expenses is not regarded as a fee. To determine whether the group insurance policyholder does have a financial interest, it is key to consider whether brokering insurance coverage is the main purpose of the activity or merely a subsidiary purpose.

For example, in the view of BaFin and IHK, the criterion of consideration is met if a rental car company is acting as the policyholder of a group insurance contract offering passenger accident insurance and the rental car company receives a fee for every party joining the policy. By contrast, no consideration exists if for example an employer takes out incapacity insurance for its employees in the form of a group insurance policy and the employer only receives the actual expenses as reimbursement but not part of the premiums. In that case the employer has no personal financial interest in the employee joining the group insurance and is therefore not an insurance broker in the eyes of BaFin and IHK. The argument that a financial interest may lie in being a more attractive employer must be rejected given that the brokering of insurance only represents a subsidiary purpose in that case.

Voluntariness

BaFin and IHK assess the voluntary nature of membership in the group insurance contract according to whether the insurance is compulsory or whether membership in the group insurance contract is automatic, for example through a provision in the statute of an association. In those cases, joining the group insurance is not voluntary.

If, for example, a compulsory insurance policy for notaries is designed as a genuine group insurance policy, the criterion of voluntariness is not met, so that the Chamber of Notaries, being the policyholder, is not an insurance broker in the view of BaFin and IHK. The same applies to associations that automatically add new members to e.g. a legal expenses insurance policy. On the other hand, if, for example, an optical store offers customers the opportunity to join a group insurance contract for glass breakage when buying glasses the customers join the group insurance contract on a voluntary basis. This applies equally to the previously mentioned passenger accident insurance offered in connection with a rental car.

Insured parties’ rights

As a third criterion, BaFin and IHK state that the insured persons must have the right to claim insurance benefits from the insurance company. No further details are given, though. This requirement is usually fulfilled in the case of group insurance policies, if only because of the basic legal concept in section 44 para. 1 sentence 1 of the German Insurance Contracts Act (Versicherungsvertragsgesetz).

Recommendation

Policyholders of a group insurance policy should thoroughly check whether the requirements set out by the CJEU apply to their business. If so, the next question is whether the policyholder requires a licence according to section 34d of the German Trade Regulation (Gewerbeordnung) or whether one of the exemptions from the licensing requirement applies. The regulatory notice from BaFin and IHK provides for some guidance but in the end the assessment will depend on the individual case.