Should policyholders of group insurance policies be licensed as insurance intermediaries? The Advocate General at the European Court of Justice (ECJ) has recommended that the ECJ answers this question in a decision that could result in disruption of insurance distribution via group-insurance contracts in Germany.
Whether and under which conditions a policyholder of a group policy is deemed to be an insurance intermediary – with the consequence that a licence for insurance mediation would be required under certain circumstances – has not been clarified under German law. Statutory law contains no explicit rule.
A genuine group policyholder is not considered an insurance intermediary
So far, the prevailing view in German higher court case-law and especially German legal literature is that the policyholder of a genuine contract of group insurance, who facilitates insured persons to join a group policy in return for payment, does not act as an insurance intermediary. This activity neither requires a specific licence under German trade law nor is the policyholder required to fulfil the duties of an insurance intermediary, particularly the duty to give advice pursuant to Sec. 61 of the German Insurance Contract Act (Versicherungsvertragsgesetz or VVG).
The situation is different if the group insurance is designed to circumvent the requirements for insurance mediation. In this context, it is particularly important whether a legal relationship exists between the policyholder and the insured persons beyond the group insurance. The connection by which persons are grouped together may not be limited solely by the fact they joined the same group policy.
This prevailing legal opinion was adopted in distribution practice and is likely also shared by the German legislator.
This view, however, which is the benchmark for current distribution practices, could now change if the ECJ follows the Advocate General's opinion of 24 March 2022 (case reference: C-633/20) on a preliminary question submitted by the German Federal Court of Justice (Bundesgerichtshof).
ECJ AG: classification of policyholder of group policy as insurance intermediary
In its decision of 15 October 2020 (case reference: I ZR 8/19), the German Federal Court of Justice stated that the question whether and under what conditions the policyholder of a group policy can be an insurance intermediary cannot be derived from the Insurance Distribution Directive (Directive (EU) 2016/97 - IDD) and previous ECJ case-law. Therefore, the German Federal Court of Justice referred the following question to the ECJ for a preliminary ruling:
Is an undertaking which, as a policyholder, maintains a travel health insurance policy and a foreign and domestic repatriation costs insurance policy as a contract of group insurance for its customers, and sells to consumers memberships entitling them to claim the insurance benefits in the event of illness or accident abroad and receives remuneration from the recruited members for the insurance cover acquired, an insurance intermediary within the meaning of Article 2 no. 3 and 5 of Directive 2002/92/EC and Article 2 par. 1 no. 1, 3 and 8 of Directive (EU) 2016/97?
In his opinion of 24 March 2022 (case reference: C-633/20), the Advocate General at the ECJ proposed that the ECJ answers the question posed by the German Federal Court of Justice for a preliminary ruling in the affirmative. A decision by the ECJ is still pending. In the vast majority of cases, however, the ECJ follows the recommendations of the Advocate General.
Most recently, in February 2022, the ECJ already ruled in a case presented by a Polish court that an "undertaking acting as policyholder", which concluded a unit-linked contract of group life insurance, is qualified as an "insurance intermediary" within the meaning of Directive 2002/92/EC because it carries out for remuneration an activity offering consumers to join that life insurance contract, and provides financial advice on the investment of capital constituted by the insurance premiums (ECJ, decision of 24 February 2022 – case reference: C-143/20 and C-213/20).
Implications for policyholders of group policies and insurers
If the ECJ answers the referred question in the affirmative and qualifies the policyholder of a contract of group insurance as an insurance intermediary or an insurance distributor within the meaning of the IMD and the IDD, this decision will have an effect on existing contracts of group insurance.
Consequently, policyholders of group policies could be considered insurance intermediaries in the sense of Sec. 34d of the German Trade and Commerce Regulation Act (Gewerbeordnung or GewO) and Sec. 59 VVG. They would therefore have to check whether the distribution of memberships to a group policy is subject to licensing in the specific case and whether they have the duty to advise the insured persons.
In this context, whether the policyholder can rely on a statutory exception from the licensing requirement or apply for an exemption with the competent German authorities should also be considered. For policyholders domiciled in Germany, the exception from the obligation to obtain a licence for ancillary insurance intermediaries pursuant to Sec. 34d par. 8 GewO and the possibility of exemption for ancillary insurance intermediaries pursuant to Sec. 34d par. 6 GewO must be considered.
If no exception or exemption applies and the policyholder conducts insurance intermediation without the necessary permission, this constitutes an administrative offence that can be punished with a fine of up to EUR 5,000 (Sec. 144 par. 1 no. 1 lit. k in conjunction with par. 4 GewO).
Insurance undertakings also face the risk of committing an administrative offence if they cooperate with insurance intermediaries without a licence (Sec. 332 par. 3 no. 3 in conjunction with Sec. 48 par. 1 no. 1 of the German Insurance Supervision Act – Versicherungsaufsichtsgesetz or VAG). Therefore, in the event of an affirmative decision by the ECJ, insurance undertakings should immediately examine whether, under these circumstances, distribution cooperation with policyholders of group policies is still possible or whether structural adjustments are required.
If the ECJ agrees with the Advocate General's proposal, this is likely to represent a profound change in the distribution models of many insurers and especially those distribution partners who have not been active as insurance intermediaries so far, but who will have to fulfil the special requirements for this regulated activity in the future.
For more information on how this imminent ruling may affect your German insurance business, contact your CMS client partner or local CMS experts: