Group insurance policyholder as Insurance Intermediary

Overview

The European Court of Justice (ECJ) ruled in its judgement of 29 September 2022 on a German request for a preliminary ruling in the TC Medical Air Ambulance Agency (TC Medical Judgement) matter, that the policyholder under a group insurance scheme (Gruppenversicherung) acts as an “insurance intermediary” and, thus, qualifies as an “insurance distributor” under Article 2 (1) nos. 1, 3 and 8 of the Directive on Insurance Distribution (IDD), provided that its activity consists:

• in offering insurance coverage to its customers via a membership under a group insurance policy to which it has subscribed previously with an insurance company insurance on a voluntary basis, 
• in return for payment by those customers who are entitled to insurance benefits. 

The judgement is hardly surprising as the reasoning of ECJ, in principle, is consistent with the opinion of Advocate General Szpunar and its February 2022 rulings on two Polish requests for a preliminary ruling on unit-linked life insurance policies.

For Germany, it is to be noted that the consequences of the ECJ ruling does not only affect insurers licenced in Germany but also EU/EEA insurers carrying out insurance business via group insurance contracts in Germany. As regards group policyholders, i.e. the heads of the group (Gruppenspitze) under a group insurance contract, having their seat or domicile outside of Germany a licence as insurance intermediary is required to carry out insurance mediation services in Germany.

Current legal situation in Germany

In Germany, the prevailing opinion so far has been that the head of the group (Gruppenspitze) under a proper group insurance contract (echter Gruppenversicherungsvertrag) does not require a licence as an insurance intermediary. The main reason given for this is that the obligation to obtain a licence pursuant to section 34d para. 1 German Trade Regulation Act (Gewerbeordnung - GewO) requires the mediation of an insurance contract, which, according to the ECJ, is precisely not the case if insurance cover is merely procured or granted. Moreover, it has been repeatedly stated that the policyholder of an insurance contract cannot at the same time also be an insurance intermediary for this contract. According to the explanatory memorandum to section 34d German Trade Regulation Act (Gewerbeordnung), this is also in line with the German legislator’s intention. 

• the group insurance contract is taken out by the policyholder in its own economic interest, for example with corresponding fee payments to the head of the group; or
• the group insurance scheme is deliberately chosen to circumvent information, advice or documentation obligations of an insurance intermediary.

Essence of the TC Medical Judgement

The following key statements can be inferred from the ECJ’s TC Medical Judgement of 29 September 2022:

Head of the group is an insurance intermediary

The ECJ generally qualifies the head of the group under a proper group insurance contract as an insurance intermediary and, thus, an insurance distributor for the purpose of the IDD, provided the mediation of insurance cover is carried out against a fee and the customer becomes deliberately a member of the group insurance contract.

In this respect, the ECJ first states that the group members’ payment obligation to the head of the group constitutes a "remuneration" within the meaning of Article 2(1) no. 9 IDD and that the prospect of receiving corresponding payments is an own economic interest of the head of the group which is different from the group members’ interest in obtaining the insurance cover mediated by the group insurance. According to the ECJ, the fact that the remuneration is paid not by the insurer but by the group members is irrelevant. The ECJ thus maintains its previous line of rulings according to which "insurance distribution" within the meaning of Article 2 (1) no. 3 in conjunction with no. 1 IDD is to be interpreted broadly. While the head of the group’s activity of advertising voluntary membership in the group insurance contract taken out by it is not explicitly described in the IDD, it is comparable to the traditional activity an insurance intermediary engages in. In line with its rulings on the Polish requests for a preliminary ruling, it is also compatible with the head of the group's status as intermediary if it itself is the policyholder under the group insurance contract.

Moreover, equality of treatment requires that consumers benefit from the same level of protection regardless of the difference in distribution channels and that the same level playing field applies to all insurance distributors.

Group members = policyholders?

In its judgement on the Polish requests for a preliminary ruling, the ECJ had qualified group members as "policyholders" within the meaning of Article 36(1) of the Life Insurance Directive, in particular because of considerations regarding the scope of protection. 
But in the TC Medical Judgement, which - despite the specific facts underlying the decision - is kept general and is thus likely to be of general application - the ECJ refers solely to the head of the group in its comments of the policyholder’s status and does not use the term “policyholder” in relation to group members. For this reason, it can be assumed that, under a proper group insurance, individual group members are not granted policyholder status under EU law as long as such status is not deemed appropriate for reasons of protection or in view of the equality of treatment. 

Who is affected by the TC Medical Judgement?

Heads of groups should give attention to the TC Medical Judgement. Undoubtedly, all B2C group insurance schemes under which insurance cover is mediated to consumers insuring themselves voluntarily against a payment are affected. Whether the TC Medical Judgement will also apply in the B2B context cannot yet be definitively confirmed. But the EJC’s arguments of remuneration, comparability and the requirement to establish a level playing field suggest that it could be the case. Heads of groups in group insurance constellations where the aspects of remuneration and consumer protection are of no or only minor relevance should not be considered as insurance intermediaries or insurance distributors. This might for instance include (sports) clubs which, in their capacity as head of the group, want to provide their members with a certain level of insurance cover and where membership in the group insurance is automatic, i.e. without the group member having to submit a declaration of membership.

But the TC Medical Judgement is also relevant for insurers because - irrespective of the requirements set out in the Federal Financial Supervisory Authority’s Circular on proper group insurance - their membership in group insurance schemes is now - at least from a compliance aspect - linked to the condition that the respective heads of groups fulfil the requirements to be met by insurance intermediaries (see also below). 

Need for action?

In principle, the ECJ’s judgement does not have any direct binding effect on the parties or other market participants. However, it is strongly advisable to prepare for the legal situation at an early stage. Also in light of the judgement on the Polish requests for a preliminary ruling, the following need for action arises according to the ECJ's recent ruling on group insurance:

 

For the head of the group

The ECJ holds that heads of groups mediating insurance cover against remuneration are thus required “to comply with, inter alia, a set of professional, financial and organisational requirements, rules of conduct such as those aimed at preventing the risk of a conflict of interest arising from any links between that intermediary and a given insurer, and with obligations to inform and advise those consumers.”

Of these requirements, only the most important are outlined in the following:

• licensing obligation (obligation to apply for an official permit) in accordance with section 34d para. 1 sentence 1 German Trade Regulation Act, taking into account the licensing requirements of section 34d para. 5 German Trade Regulation Act;
• registration and notification obligations concerning the head of the group and its executive staff in accordance with section 34d para. 10 German Trade Regulation Act; sections 8 and 9 German Regulation on Insurance Mediation and Advice (Versicherungsvermittlungsverordnung - VersVermV);
• compliance with the requirements for qualification and reliability of staff (including compliance with ongoing training obligations) pursuant to section 34d para. 9 German Trade Regulation Act;
• compliance with the other organisational requirements of the German Regulation on Insurance Mediation and Advice (in particular also for payment protection in favour of group members);
• fulfilment of pre-contractual information obligations to potential group members (by using and, if applicable, supplementing the insurer's then current pre-contractual information); and
• if applicable, fulfilment of obligations to advise (potential) group members.

Moreover, there is now considerable legal uncertainty as, due to the view prevailing so far, the German provisions on insurance intermediaries have not been tailored to group insurance. Accordingly, individual provisions cannot be readily applied to the head of the group. As long as the legislator has not taken action here, parties to a group insurance contract are recommended to agree on clear contractual provisions coming as close as possible to the rationale of the TC Medical Judgement.

For insurance companies

As heads of groups are now qualified as insurance intermediaries, sections 48-51 German Insurance Supervision Act (Versicherungsaufsichtsgesetz - VAG) henceforth apply to the membership of insurance companies in group insurance schemes. 

It should be particularly noted that the cooperation with non-licensed heads of groups is from now on no longer permitted. Since there is no transitional period this applies, in principle, with immediate effect. Also, insurance companies are advised to review existing group insurance schemes for relevant conflicts of interest, paying particular attention to compliance with the remuneration provisions of the German Insurance Supervision Act. Since, in this respect, the conduct of insurers is subject to legal supervision by the Federal Financial Supervisory Authority, insurance companies should reorganise their internal processes with regard to existing group insurance contracts and actively approach their group policyholders, discuss and make possible adjustments or terminate group insurance contracts, if necessary.