Compulsory Contracting (Kontrahierungszwang)
Compulsory contracting obliges an insurer to conclude an insurance contract with any applicant within a defined scope, without the right to individually decline the risk.
Concept
Compulsory contracting is a statutory exception to an insurer’s otherwise free decision whether to conclude a contract: in certain, legally defined areas an insurer must accept an application and may not decline it because of the individual risk, as long as the applicant meets the general requirements. The most practically important example is motor third-party liability insurance, where being a registered keeper of a vehicle in the relevant country creates a legal entitlement to cover on standard tariff terms.
Further applications
Compulsory contracting also regularly exists in health insurance, for instance in the basic tariff (Basistarif) of German private health insurance or in certain basic insurance products where the insurer may not carry out medical underwriting or charge risk-based loadings. The purpose of these rules is always to ensure a minimum level of insurance cover for risks that are especially worth protecting from a social or road-safety perspective, and which would otherwise find no cover, or only at prohibitive terms, on the free market.
Relevance for insurance practice
For insurers, compulsory contracting limits risk selection, which must be compensated through appropriately calculated flat-rate premiums or industry-wide equalisation mechanisms (risk pools); for intermediaries, understanding the relevant duties to contract is important to correctly inform clients about their entitlement to conclude a contract, particularly when an application has initially been wrongly declined.