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Erscheinung:03.08.2015 Kaj Hanefeld, BaFin

EEA service providers: Rules for insurers domiciled in other EU and EEA countries

The Insurance Contract Act (VersicherungsvertragsgesetzVVG) requires any person resident in Germany to take out and maintain health insurance cover with an insurance undertaking authorised to conduct business in Germany. This insurance policy has to meet certain requirements.

As a general principle, insurance contracts can also be taken out with an insurer domiciled in another country of the European Union or the European Economic Area ("EEA service providers") in order to meet the legal obligation to take out health insurance, since the Third Non-life Insurance Directive allows insurers that are authorised to conduct business in one member state to do so throughout the entire European Union.

EEA service providers

In this article, "EEA service providers" mean private insurance undertakings domiciled in another member state of the European Union or in another signatory state to the Agreement on the European Economic Area (EEA) that provide insurance cover to German residents from outside Germany. EEA service providers are supervised by the competent supervisory authorities of their home countries. If they conduct business in Germany, they are also subject to limited supervision by BaFin under section 110a of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG). This supervision is restricted to compliance with provisions designed to safeguard the interests of the general good. These are contained in particular in the VAG and the Insurance Contract Act (VersicherungsvertragsgesetzVVG).

More contracts with EEA service providers

BaFin has been observing for some time now that EEA service providers are increasingly offering private health insurance in Germany. Repeated media reports about such offers have been one of the factors that have brought this matter to BaFin's attention.

This article describes the most important statutory provisions applicable to EEA service providers and gives an insight into their impact and the associated risks – not only for EEA service providers themselves but also for policyholders, insured persons and insurance intermediaries. Another focus of this article is on the changes brought about by the new Insurance Supervision Act and its effects on BaFin's supervisory activities.

Policyholders/insured persons
German insurance law makes a distinction between policyholders and insured persons. A policyholder is the person who takes out an insurance contract and is therefore the holder of the insurance. Policyholders must fulfil the contractual obligations, such as paying premiums. An insured person, on the other hand, is the person covered by the insurance. Policyholders and insured persons can be – but do not have to be – the same person.

Conflict of laws

Contracts taken out with EEA service providers in order to meet the health insurance obligation are subject to German law pursuant to Article 7 of the European Rome I Regulation in conjunction with section 46c (2) of the Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen GesetzbuchEGBGB) and section 193 (3) of the VVG. Section 208 of the VVG bans contractual provisions that depart from the requirements governing health insurance contained in sections 194-199 and 201-207 of the VVG to the detriment of the policyholder or the insured person. The requirements of section 215 of the VVG also work in favour of policyholders; these stipulate that, in the case of actions brought on the basis of an insurance contract or the brokerage of an insurance contract, the local court responsible for the district in which the policyholder is resident will have jurisdiction. If there is a dispute, this means that policyholders can bring actions against their EEA insurers or intermediaries before their local court.

In some cases known to BaFin, however, the contracts with English EEA service providers stipulate that English law applies. These contracts conflict with the German rules, which might cause additional difficulties in the case of disputes between the EEA service provider and the insured person, since every contractual provision has to be assessed for compliance with applicable German law. The case-by-case assessment falls within the remit of the civil courts. As explained in the following, BaFin has also acted in the interest of the insureds in this regard.

Limitation of benefits

Every person resident in Germany is required to take out and maintain health insurance with an insurance undertaking authorised to conduct business in Germany. At a minimum, this policy must refund the cost of outpatient and inpatient treatment. The excess, i.e. the part of the costs deducted from a claim and to be borne by the policyholders themselves, is limited to a maximum of EUR 5,000 per year (section 193 (3) sentence 1 of the VVG).

In most of the cases known to BaFin, it is questionable if the contracts with EEA service providers meet the legal requirements governing the obligation to take out health insurance. Some of the contracts contain substantial restrictions, in particular annual limits on benefits (e.g. EUR 1.5 million or EUR 3 million per year), limits on reimbursement for the costs of certain treatments, or outright exclusions of reimbursements. This sort of limitation of benefits may have serious consequences for the insured persons.

If an insurance contract with an EEA service provider does not meet the requirements of the VVG, the insured person loses out twice. Not only do they suffer from the potential limited obligation of the EEA service provider to pay benefits, they also (temporarily) fail to comply with their legal obligation to take out insurance. If an insured person retrospectively takes out a contract that meets the obligation to take out insurance stipulated in section 193 (3) of the VVG, they have to pay a premium supplement because of the delay in taking out the insurance contract. This would be the case, for example, if they switch from an EEA service provider to a German insurer.

Long-term care insurance

In addition, policyholders and insured persons may suffer disadvantages relating to the obligation to take out long-term care insurance: under section 23 (1) and (2) of the Eleventh Book of the German Social Security Code (Elftes Sozialgesetzbuch), persons insured with a private health insurance undertaking also have to take out long-term care insurance. However, this requirement only applies if the existing health insurance contract complies with the health insurance obligation under section 193 (3) sentence 1 of the VVG.

To BaFin's knowledge, there are no EEA service providers offering private long-term care insurance. The persons concerned therefore have to take out separate long-term care insurance with German health insurance undertakings. These undertakings are bound by law to enter into such a contract upon request with – and only with – any person legally required to take out long-term care insurance.

As a consequence, German health insurance undertakings are only required to enter into a private long-term care insurance contract with a person who has taken out health insurance with an EEA service provider if the health insurance contract meets the requirements of section 193 (3) sentence 1 of the VVG. If this is not the case, German insurers may reject applications for compulsory long-term care insurance.

Substitutive health insurance

Health insurance taken out in order to comply with the statutory obligation to take out insurance under section 193 (3) sentence 1 of the VVG is considered to be "substitutive health insurance", i.e. health insurance that can replace, in whole or in part, the health or long-term care insurance protection provided by the statutory social security system (section 12 (1) of the VAG). An insurance contract continues to qualify as substitutive health insurance as long as the conceptual characteristics are met, even if the contract in question does not meet the requirements of section 193 (3) sentence 1 of the VVG. The conceptual characteristics are met if the undertaking provides insurance services that also form part of the scope of benefits of the statutory health insurance system in Germany.

Insurance undertakings operating substitutive health insurance business must comply with certain requirements of the VAG. For instance, substitutive health insurance has to be operated in accordance with the technical principles of life insurance − in particular, insurance undertakings must establish an ageing provision. These provisions are designed to prevent the insured persons from having to pay higher premiums as they get older by covering medical expenses that tend to increase with age.

At present, no EEA service provider meets these requirements. If some EEA service providers charge lower premiums than German health insurers, this is usually due to the fact that they do not establish ageing provisions. Health insurance taken out with EEA service providers is therefore not eligible for employer healthcare allowances either.

Employer healthcare allowance
BaFin has repeatedly been asked if health insurance taken out with EEA service providers might also be eligible for employer healthcare allowances. Employer healthcare allowances may be paid in particular if an employee's salary exceeds the threshold for statutory health insurance.
Under section 257 (2a) of the Fifth Book of the German Social Security Code (Fünftes Sozialgesetzbuch), employer healthcare allowances are paid only if the insurance undertaking meets the requirements of the provisions contained in that section, in particular if it operates its health insurance business in accordance with the technical principles of life insurance. BaFin issues confirmations to this effect upon request by the insurance undertaking. To date, however, BaFin has not issued any such confirmations for EEA service providers, since none of them meets the relevant requirements.

Middlemen

Under section 110a (1) and (4) no. 2 of the VAG, the provisions on substitutive health insurance set out in the VAG apply − in line with the Third Non-life Insurance Directive − to any EEA service providers offering their health insurance services in Germany through "middlemen". In this case, the undertakings have to submit their general policy conditions to BaFin in advance.

If EEA service providers do not use middlemen, their business model – offering health insurance services in Germany without ageing provisions and therefore at lower (initial) premiums than German insurers – does not conflict with the VAG as it currently stands.

Middlemen
The term "middlemen" is interpreted broadly. In BaFin's administrative practice it includes all intermediaries domiciled in Germany, including insurance brokers (section 59 (1) – (3) of the VVG and section 34d of the German Industrial Code (Gewerbeordnung)), if the person in question is involved when the contract is taken out or executed. Insurance intermediaries who offer services of EEA service providers are usually "middlemen" and are therefore subject to the provisions of the Insurance Supervision Act (VersicherungsaufsichtsgesetzVAG).

New VAG

The new VAG will enter into force on 1 January 2016. Starting on this date, the limitation that the VAG only applies in cases where EEA service providers offer their services via middlemen ceases to exist.

In future, the business activities of EEA service providers will fall within the scope of the VAG and thus also within BaFin's responsibilities, irrespective of the marketing channel, in other words regardless of whether they engage middlemen or not. This is a positive development that promotes the interests of consumers. Moreover, the recast version eliminates ambiguities concerning the interpretation of the term "middlemen". Under the current rules, clarifying the facts of a specific case is often difficult. BaFin therefore welcomes the recast version of the VAG.

Ongoing procedures

BaFin has become aware of a number of EEA service providers that offer health insurance in Germany and has advised them of the legal requirements they have to comply with. As explained above, their contracts are subject to German law (VVG) and they have to comply with the provisions of the VAG.

BaFin's supervisory procedures to assess the lawfulness of the business models of certain EEA service providers engaging middlemen in Germany are still ongoing. BaFin is also involving the competent supervisory authorities of the relevant home countries in these procedures.

Insurance intermediaries

Under section 61 of the VVG, insurance intermediaries are in general required to adequately advise the person wishing to take out insurance about the desired product. If they offer contracts of EEA service providers in Germany, they have to consider the particular characteristics of health insurance provided by EEA service providers, as described above, as well as their consequences, and they have to advise their clients accordingly. This is the only way they can avoid liability risks.

Additional information

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