Distribution
Distribution: 28 technical terms explained – definition, synonyms and legal basis.
Agent's Authority to Bind
Synonyms: Abschlussvollmacht, Binding Authority
Authority to bind entitles an insurance agent to conclude insurance contracts on the insurer's behalf with immediate binding effect.
Concept
Authority to bind is the power granted by an insurer to its agent to conclude legally binding insurance contracts on the insurer’s behalf. It distinguishes an agent with binding authority from one authorized only to solicit business without the power to conclude contracts.
Legal Effect
A contract concluded by an authorized agent acting within the scope of its binding authority becomes effective for the insurer immediately, without requiring a separate acceptance declaration from the insurer. Where an agent acts outside the scope of its authority, the insurer may nevertheless be bound under the doctrines of apparent authority or authority by acquiescence, if the policyholder could reasonably rely on the existence of that authority.
Practical Relevance
The scope of an agent’s binding authority is set out in the agency agreement and may be limited to specific lines of business, sums insured, or contract types. Knowledge of the scope of an agent’s authority is particularly important for policyholders in disputes over contract formation.
Agency Agreement
Synonyms: Agenturvertrag
The agency agreement governs the contractual relationship between an insurer and its insurance agent, including authority, remuneration, and duties.
Concept
The agency agreement is the commercial agency contract between an insurance company and an insurance agent. It sets out the essential rights and obligations of the relationship, in particular the scope of authority to solicit or conclude contracts, the commission arrangements, reporting duties, and the contract term and termination provisions.
Key Provisions
Typical elements of an agency agreement include the designation of lines of business the agent may distribute, requirements for customer advice and documentation, provisions on commission clawback in the event of early contract termination, and non-compete obligations during and after termination of the relationship.
Termination and Compensation Claim
Upon termination of the agency agreement, the insurance agent may, under certain conditions, be entitled to a compensation claim against the insurer under § 89b of the German Commercial Code (HGB), provided the insurer continues to derive substantial benefits from the customer relationships built up by the agent after the end of the contract.
Managing General Agent (MGA)
Synonyms: Assekuradeur, MGA
A managing general agent is a multi-line agent with extensive underwriting authority who binds specialty risks, collects premiums, and settles claims on behalf of the insurers it represents.
Concept
The term originally described a multi-line agent operating mainly in marine and transport insurance, underwriting specialized risks in that field. Today, the term refers to a multi-line agent with extensive underwriting authority whose activity is no longer limited to transport business but also extends to property insurance lines.
Role in the Distribution Model
A managing general agent underwrites specialty insurance on behalf of the insurers it represents and typically has the right to collect premiums, bind risks, and settle claims itself in the name of the represented company.
Significance
As a result, the managing general agent partly acts like a risk carrier itself, even though the actual insurance risk remains with the represented insurer. This delegated underwriting model gives insurers access to niche markets and specialized expertise without having to build up their own dedicated departments.
Churning
Synonyms: Churning
Churning refers to the improper replacement of an insurance contract, driven primarily by an intermediary's commission interest, without economic benefit to the customer.
Concept
Churning refers to the improper practice of cancelling a customer’s existing insurance contract and replacing it with a new, economically comparable or even disadvantageous contract, where the switch primarily benefits the intermediary through a new placement commission but offers the customer no corresponding added value.
Typical Scenarios
Churning occurs particularly frequently with long-term life and annuity contracts, where switching contracts costs the customer already accrued entitlements (such as surrender values, aging reserves, or favorable actuarial bases from earlier product generations) and involves new acquisition costs, while the intermediary benefits from the renewed commission payment.
Regulatory Measures
To combat churning, regulatory requirements, such as under the Insurance Distribution Directive (IDD), require intermediaries to document a needs analysis and a justification for why switching contracts is in the customer’s interest, and in certain cases a comparative calculation between the existing and the new contract.
Brokerage Commission (Courtage)
Synonyms: Courtage, Broker Commission
Brokerage commission is the remuneration paid by an insurer to an insurance broker for placing and servicing an insurance contract.
Concept
Brokerage commission (Courtage) is the remuneration paid by an insurer to an insurance broker for placing and ongoing servicing of an insurance contract; it is usually calculated as a percentage of the premium and, unlike an insurance agent’s commission, is characteristic of the independent brokerage business.
Placement and Renewal Commission
A distinction is made between the placement commission, paid once for arranging the conclusion of the contract, and the ongoing renewal or servicing commission, paid for the continuous administration and servicing of the contract during its term, compensating the broker for advisory services provided over the life of the policy.
Legal Classification
Because an insurance broker is regarded under German law as representing the policyholder’s, not the insurer’s, interests, the payment of brokerage commission by the insurer is sometimes discussed critically, since it could potentially create incentives conflicting with the broker’s pure representation of the client’s interests; transparency requirements under the Insurance Distribution Directive (IDD) therefore obligate brokers to disclose their remuneration.
Cross-Selling
Synonyms: Cross-Selling
Cross-selling refers to selling additional insurance products to existing customers who already hold another contract with the same insurer.
Concept
Cross-selling refers to selling additional, thematically related or complementary insurance products to an existing customer who already holds another contract with the same insurer or intermediary, as distinct from up-selling, which aims to sell a higher-value variant of the same product.
Relevance for Insurers
Cross-selling is a key distribution strategy for increasing customer lifetime value, since the cost of acquiring new customers is significantly higher than that of expanding existing customer relationships; typical cross-selling approaches in insurance include selling home contents insurance to an existing motor insurance customer, or disability income insurance to a life insurance customer.
Data Protection and Regulatory Aspects
Cross-selling activities are subject to the Insurance Distribution Directive’s (IDD) requirements for needs-based advice as well as GDPR data protection requirements regarding the use of customer data from existing contractual relationships for distribution purposes.
Direct Insurer
Synonyms: Direktversicherer
A direct insurer sells its products directly to end customers, particularly via the internet and telephone, without intermediaries.
Concept
A direct insurer is an insurance company that sells its products directly to end customers, particularly via the internet, telephone, or its own digital distribution channels, without engaging independent intermediaries such as brokers or multi-agents.
Cost Structure and Competitive Advantage
Because direct distribution does not incur placement commissions for brokers or agents, direct insurers can tend to offer their products more cheaply than insurers relying on traditional distribution through exclusive agents or brokers; in return, individual, personal advice is not provided, which is why direct distribution is particularly suited to standardized, easily understood products.
Development and Market Relevance
With the increasing digitalization of insurance distribution, direct distribution has evolved from a niche originally based on telephone and mail into a significant distribution channel, particularly in motor and simple property insurance, with traditional insurers also increasingly building their own direct distribution brands or digital sales channels alongside their traditional intermediary business.
Referral Marketing
Synonyms: Empfehlungsmarketing
Referral marketing acquires new customers through active recommendations from satisfied existing customers and is considered a particularly cost-effective distribution channel in insurance.
Concept
Referral marketing is a distribution strategy in which an intermediary or insurer specifically encourages satisfied existing customers to actively recommend the company or intermediary to their personal network, such as family, friends, or colleagues, thereby generating new customer contacts.
Advantages over Other Acquisition Methods
Referral marketing is considered a particularly cost-effective and promising distribution channel, since the recommendation comes from a person already trusted by the potential new customer, typically bringing higher trust and a higher probability of conversion than impersonal cold calling or mass advertising.
Legal and Practical Framework
Because referral marketing is frequently linked to financial or other incentives for the referring existing customer (such as bonuses or gifts), designing such programs requires attention to data protection requirements regarding the disclosure of third parties’ contact details as well as competition law limits on permissible customer solicitation.
Insurance Product Information Document (IPID)
Synonyms: IPID, Erstinformationsblatt
The IPID is a standardized, short information document summarizing the key features of a non-life insurance contract for the policyholder in an understandable format before conclusion.
Concept
The Insurance Product Information Document (IPID), known in German as the Erstinformationsblatt, is a standardized, short information document that summarizes the essential features of a non-life insurance product for the policyholder in an easily understandable form before the contract is concluded.
Content and Format
The IPID follows an EU-wide standardized mandatory format and includes, among other things, information on the type of insurance, the main insured risks and excluded risks, any geographical limits on coverage, the policyholder’s obligations, and the contract’s term and termination options.
Purpose and Origin
The IPID was introduced by the Insurance Distribution Directive (IDD) to give consumers a simple, standardized, and easily comparable overview of a product’s key features, independent of the often significantly more complex and extensive full insurance documentation; the intermediary or insurer is required to provide it before the contract is concluded.
Exclusive Agent (Exklusivvertreter)
Synonyms: Exklusivvertreter, Ausschliesslichkeitsvertreter
An exclusive agent places insurance contracts solely for a single insurance company, with which it maintains a particular relationship of trust.
Concept
An exclusive agent is an insurance agent who, by virtue of a contractual commitment, acts solely for a single insurance company and places that insurer’s products in its own name and on that insurer’s behalf.
Contractual Commitment and Remuneration
The exclusive agent maintains a lasting, often extensive relationship of trust with its insurer, which regularly provides start-up support, a protected sales territory (book protection), and renewal commissions for ongoing customer service; in return, the exclusive agent is contractually obligated to place only that one insurer’s products.
Relevance in the German Distribution Market
Exclusive agency distribution has historically been the dominant distribution channel for many large German insurers, allowing tight control of product offering, advisory quality, and brand presentation; with the growing importance of brokers, multiple agents, and direct distribution, the relative market share of exclusive agency distribution has partly shifted in recent decades.
Distance Selling Contract (Fernabsatzvertrag)
Synonyms: Fernabsatzvertrag
A distance selling contract is an insurance contract concluded exclusively through means of distance communication, subject to special information duties and an extended right of withdrawal.
Concept
A distance selling contract is an insurance contract concluded between an insurer or intermediary and a consumer exclusively through means of distance communication (such as telephone, internet, or mail), without the contracting parties meeting in person during contract negotiations.
Special Information Duties
For distance selling contracts, applicable consumer protection provisions provide for extended pre-contractual information duties, for example regarding the identity of the insurer or intermediary, the essential features of the insurance benefit, the total price including all ancillary costs, and the conditions, deadlines, and procedures for exercising the right of withdrawal.
Right of Withdrawal
Consumers are regularly entitled to a right of withdrawal for insurance contracts concluded at a distance, allowing them to withdraw from the contract within a statutory deadline without giving reasons; if the consumer is not properly informed of the right of withdrawal, the withdrawal period can be significantly extended.
Financial Investment Intermediary (Finanzanlagenvermittler)
Synonyms: Finanzanlagenvermittler
A financial investment intermediary places certain investments such as investment fund units or capital investments and requires a distinct trade-law license to do so.
Concept
A financial investment intermediary is a person who commercially carries out investment brokerage or investment advice regarding certain financial instruments, particularly units in open-ended investment funds and closed-end capital investments, without requiring the broader license of a securities services firm under the Banking Act.
Trade-Law License
Acting as a financial investment intermediary in Germany requires a license under Section 34f of the Trade Regulation Act, issued by the competent chamber of industry and commerce, which requires, among other things, proof of expertise, reliability, and professional liability insurance; supervision of financial investment intermediaries lies with the trade licensing authorities, while BaFin is responsible for securities services firms.
Distinction from Insurance Intermediaries
Because certain insurance products, particularly unit-linked life and annuity insurance, have both an insurance and an investment character, brokering such products is primarily governed by insurance intermediary law; purely investment products without an insurance component, by contrast, fall within the scope of financial investment intermediation, meaning an intermediary may need both licenses depending on the range of products offered.
Trail Commission (Folgeprovision)
Synonyms: Folgeprovision, Bestandspflegeprovision
Trail commission is ongoing remuneration paid to an intermediary for servicing an existing insurance contract after it has been concluded.
Concept
Trail commission (Bestandspflegeprovision) is ongoing, regularly recurring remuneration that an insurer pays to the servicing intermediary for the continuous customer service and administration of an already concluded insurance contract.
Distinction from Acquisition Commission
While acquisition commission is paid as a one-time payment or spread over a limited period for newly placing a contract, trail commission rewards the intermediary’s ongoing servicing throughout the entire contract term, for example through advice on policy amendments, support in the event of a claim, or general customer care.
Relevance for the Remuneration Model
Trail commission promotes a sustainable remuneration model geared toward long-term customer retention, since the intermediary retains an economic interest in maintaining and nurturing the customer relationship even after the contract is concluded; in regulatory discussions, this is sometimes viewed as an advantage over remuneration based solely on acquisition, which can create incentives for frequent policy switching (churning) that is not always beneficial to the customer.
Suitability Assessment (Geeignetheitsprüfung)
Synonyms: Geeignetheitsprüfung
The suitability assessment requires an intermediary providing advice to gather and consider the customer's knowledge, experience, objectives, and financial situation.
Concept
The suitability assessment requires an insurance intermediary providing advice to gather the customer’s knowledge and experience, personal circumstances, objectives and needs, and financial situation, in order to recommend an insurance product that is actually suitable for that customer on that basis.
Scope of Application
The suitability assessment is particularly central to the placement of insurance-based investment products with an investment character (such as unit-linked life insurance), since here the customer’s individual financial situation, risk appetite, and investment horizon are decisive for the suitability of the recommended product.
Documentation and Legal Consequences
The outcome of the suitability assessment and the reasons for the specific product recommendation must be documented for the customer in a suitability statement; if the suitability assessment is omitted or improperly carried out and the customer thereby suffers a loss, for example because an unsuitable product was recommended, this can give rise to claims for damages by the customer against the intermediary for negligent advice.
Doorstep Selling (Haustürgeschäft)
Synonyms: Haustürgeschäft, Off-Premises Contract
Doorstep selling refers to concluding an insurance contract away from the intermediary's business premises, such as in the customer's private home, which triggers extended withdrawal and disclosure obligations to protect the consumer.
Concept
Doorstep selling (today generally referred to legally as a contract “concluded away from business premises”) refers to concluding a contract in a situation where the consumer is prompted, unexpectedly or outside the usual sales environment, to make a contractual decision – for example, during a visit by the intermediary to the consumer’s home, workplace, or in public spaces.
Consumer Protection
Because of the particular element of surprise and pressure involved, many jurisdictions grant consumers an extended or separate right of withdrawal for doorstep-sold contracts, existing independently of the general right of withdrawal applicable to insurance contracts. The intermediary is also generally required to explicitly inform the customer of this right of withdrawal in text form.
Distinction from Distance Selling Contracts
While a distance selling contract concerns conclusion of a contract via means of communication without personal contact (e.g., telephone, internet), doorstep selling is characterized by the intermediary’s personal presence away from the usual business premises; both distribution methods, however, are subject to comparable underlying consumer protection principles.
Duty to Advise (Hinweispflicht)
Synonyms: Hinweispflicht, Advisory Duty
The duty to advise is the statutory obligation of an insurer or intermediary to inform the policyholder of material aspects of the contract, in particular exclusions, obligations, and rights of withdrawal.
Concept
The duty to advise obligates insurers and insurance intermediaries to inform the policyholder in text form of circumstances material to their decision. This includes, in particular, information on the intermediary’s status, remuneration, exclusions and obligations under the policy, and existing rights of withdrawal or cancellation.
Legal Basis
Within the European legal area, the duty to advise is significantly shaped by the Insurance Distribution Directive (IDD) and the corresponding national implementing legislation (in Germany, e.g., Sections 6 et seq. of the Insurance Contract Act). It exists both pre-contractually (information obligations prior to conclusion of the contract) and during the term of the contract, for example in the event of material changes to the risk or contract terms.
Legal Consequences of Breach
A breach of the duty to advise can give rise to claims for damages by the policyholder against the intermediary or insurer, and in individual cases may result in the insurer being unable to rely on an exclusion or breach of an obligation about which it failed to properly inform the policyholder.
Fee-Based Advice (Honorarberatung)
Synonyms: Honorarberatung, Fee-Only Advice
Fee-based advice is a remuneration model in insurance and financial advisory services in which the advisor is paid a fee directly by the client rather than being financed through commissions from the product provider.
Concept
Under fee-based advice, the insurance or financial advisor is paid directly and transparently by the client, rather than through a placement commission paid by the product provider as is customary in traditional commission-based distribution. The aim of this model is to reduce potential conflicts of interest that can arise when the recommendation of a particular product correlates with the amount of commission flowing to the advisor.
Regulatory Framework
In several European jurisdictions, fee-based advice has been introduced as a distinct, regulated intermediary category (in Germany, for example, the “fee-based insurance advisor” under Section 34d(2) of the Trade Regulation Act) that exists alongside traditional commission-based intermediation. Fee-based advisors are frequently subject to a prohibition on accepting commissions in order to consistently rule out conflicts of interest.
Market Relevance
Despite regulatory support, fee-based advice has to date only established itself as a niche model in many markets, since a large proportion of customers are reluctant to make a direct payment for advisory services, even though the costs are ultimately also borne through premium calculation under the commission-based model.
Collection Authority (Inkassovollmacht)
Synonyms: Inkassovollmacht, Premium Collection Authority
Collection authority entitles an insurance intermediary to receive premium payments from the policyholder on behalf of the insurer, with the effect that payment to the intermediary discharges the policyholder's obligation toward the insurer.
Concept
Collection authority is an authorization granted by the insurer to an insurance intermediary to receive premium payments from the policyholder in the name and for the account of the insurer. If the policyholder pays the authorized intermediary, the payment is deemed to have been made vis-à-vis the insurer, even if the intermediary fails to forward the amount to the insurer, or forwards it late.
Relevance for the Policyholder
Collection authority protects the policyholder against the risk that a payment properly made to the intermediary fails to reach the insurer due to the intermediary’s misconduct or insolvency; in that case, the risk of onward transmission is borne by the insurer, not the policyholder.
Distinction from Other Authorities
Collection authority must be distinguished from binding authority (authorization to conclude insurance contracts on behalf of the insurer) and claims settlement authority; an intermediary may hold one, several, or none of these authorities, which is of considerable practical significance for the allocation of liability in the event of a dispute.
Conflict of Interest (Interessenkollision)
Synonyms: Interessenkollision, Interessenkonflikt
A conflict of interest exists when an insurer's or intermediary's own interests contradict those of the policyholder, thereby jeopardizing objective advice or service delivery.
Concept
A conflict of interest arises when an insurance intermediary or insurer pursues its own economic or other interests during advice or service delivery that conflict with, or could influence, the customer’s interests. Typical triggers include commission-based remuneration models, sales targets, or ownership relationships between the intermediary and the product provider.
Regulatory Requirements
The European Insurance Distribution Directive (IDD) and corresponding national implementing provisions require insurers and intermediaries to identify and avoid conflicts of interest through appropriate organizational measures, or, where complete avoidance is not possible, to disclose them to the customer. In particular, disclosure of the type and amount of remuneration serves to make potential conflicts of interest transparent to the customer.
Mitigation Measures
Common measures for reducing conflicts of interest include the organizational separation of distribution and product development functions, remuneration models without sales incentives for particular products, and the introduction of fee-based advice as a commission-free alternative to traditional intermediation.
Cold Calling
Synonyms: Kaltakquise
Cold calling refers to contacting a potential customer by phone or in person without prior consent or an existing business relationship.
Concept
Cold calling refers to an intermediary contacting a potential customer by phone, in person, or electronically, where no prior business relationship existed and the person contacted has not expressly consented to being contacted.
Legal Permissibility in Germany
In Germany, telephone cold calling of consumers without their prior express consent is generally prohibited under the Act Against Unfair Competition (UWG) and can be sanctioned with fines by the Federal Network Agency; in the business-to-business context, by contrast, relaxed requirements apply, provided a legitimate interest on the part of the person called can be presumed.
Relevance for Insurance Distribution
Since insurance intermediaries often wish to rely on cold calling for initial contact with potential customers, obtaining and documenting consent in a legally sound manner (for example within existing customer relationships or through qualified referral marketing programs) is of considerable practical importance to avoid competition law and data protection risks.
Advisory Documentation Record (Kundenberatungsprotokoll)
Synonyms: Kundenberatungsprotokoll, Advice Record
The advisory documentation record is the written record of an insurance advisory session, capturing the customer's demands and needs and the reasons for the recommendation given.
Concept
The advisory documentation record is the written record of an insurance advisory session, in which the intermediary sets out, in a traceable manner, the demands and needs expressed by the customer, the resulting risk analysis, and the reasons for the specific recommendation given.
Legal Basis and Purpose
The obligation to prepare an advisory documentation record is an essential component of the documentation requirements derived from the Insurance Distribution Directive (IDD) and the corresponding national implementing provisions. It serves to demonstrate that the advice met the statutory requirements of the demands-and-needs test, protecting both the customer from unsuitable advice and the intermediary from unfounded liability claims.
Practical Significance in Disputes
In the event of a later dispute over allegedly defective advice, the advisory documentation record carries considerable evidentiary weight; a carefully and completely documented record can rebut an inaccurate claim by the customer about the course of the advisory session, while an incomplete or missing record is generally construed against the intermediary.
Broker's Professional Liability (Maklerhaftung)
Synonyms: Maklerhaftung, Broker's Errors and Omissions
Broker's professional liability refers to the civil liability of an insurance broker toward its client for damage arising from defective advice, placement, or ongoing servicing.
Concept
Broker’s professional liability refers to the civil liability of an insurance broker toward its client for damage arising from a breach of its advisory, disclosure, or documentation duties. Because an insurance broker is regarded as an independent representative of the policyholder’s interests, it is generally subject to a stricter standard of care regarding the quality of its advice compared to an insurance agent.
Typical Liability Scenarios
The most common liability scenarios include an inadequate needs analysis and risk assessment prior to policy inception, defective or incomplete advice regarding the scope and limitations of the coverage placed, a failure to alert the client to coverage gaps or necessary adjustments to coverage over time, and errors in policy servicing, such as a delayed or omitted forwarding of important communications from the insurer.
Coverage through Professional Liability Insurance
Because of the significant liability exposure involved, insurance brokers are legally required in most jurisdictions to maintain a dedicated professional liability insurance policy (intermediary liability) with a regulatory minimum sum insured, covering claims for damages brought by clients arising from defective intermediation activities.
Broker's Authority (Maklervollmacht)
Synonyms: Maklervollmacht, Broker's Mandate
Broker's authority is the mandate granted by the policyholder that authorizes an insurance broker to represent them toward insurers within a defined scope, without the broker acting on behalf of an insurer.
Concept
Broker’s authority is the mandate granted by the policyholder that authorizes the insurance broker to negotiate with insurers, inspect contract documents, manage policy data, and, within the agreed scope, make legally binding declarations, all in the policyholder’s name and on their instruction. It establishes an agency relationship between the broker and the policyholder and must be clearly distinguished from the authority held by an insurance agent.
Distinction from the Position of an Insurance Agent
While an insurance agent acts on behalf of, and with authority granted by, a specific insurer, representing that insurer’s interests, an insurance broker is an independent representative of the policyholder’s interests; broker’s authority therefore does not create any representative power toward the insurer, but merely the right to act toward insurers in the policyholder’s name.
Practical Relevance for Policy Servicing
In practice, broker’s authority particularly governs the broker’s access to the policyholder’s policy data held by existing insurers (so-called broker-of-record servicing), the authority to receive declarations made by the insurer, and, where applicable, the authority to make certain policy changes in the course of ongoing servicing of the policyholder.
Multiple Agent (Mehrfachagent)
Synonyms: Mehrfachagent
A multiple agent places insurance contracts for several independent insurers, without primarily representing the customer's interests as a broker does.
Concept
A multiple agent is an insurance intermediary who places contracts on behalf of several independent insurance undertakings, as distinct from an exclusive agent, who acts solely for a single insurer.
Legal Status
The multiple agent legally acts on behalf of, and in the interest of, the respective insurers for whom they act, and is classified under German law as an insurance agent rather than an insurance broker; unlike the broker, who is regarded as representing the policyholder’s interests, the multiple agent is therefore generally not subject to a comprehensive, market-wide duty to search in the customer’s interest.
Distinction from an Insurance Broker
The distinction between a multiple agent and a broker is practically significant for the customer, since the broker is obligated to identify the product best suited to the customer among the available market offerings, whereas the multiple agent merely selects from the offerings of the insurers with whom it has an agency agreement; the Insurance Distribution Directive (IDD) therefore requires clear disclosure of the intermediary’s respective status to the customer.
Net Policy / Commission-Free Policy (Nettopolice)
Synonyms: Nettopolice, Commission-Free Tariff
A net policy is an insurance contract whose premium contains no sales commission, because the advisory service is separately and transparently remunerated between the client and the intermediary.
Concept
A net policy is an insurance contract whose premium contains no calculated sales commission, because the insurance intermediary is compensated for its advisory and placement services not through a commission hidden within the premium, but through a separately agreed and transparently disclosed fee paid directly by the client to the intermediary.
Relationship to Fee-Based Advice
The net policy is the contractual counterpart to fee-based advice: while fee-based advice relates to the form of remuneration for the advisory service, the net policy describes the correspondingly adjusted insurance product itself, whose premium is calculated from the outset without a commission component and therefore tends to be lower than an otherwise comparable commission-based policy.
Relevance for Transparency and Conflicts of Interest
Proponents of the net policy argue that separating the advisory fee from the insurance premium reduces conflicts of interest that can arise under commission-based remuneration, such as the incentive to recommend products with higher commission rather than the most suitable solution; net policies, however, require clients to have a pronounced willingness to pay a transparently disclosed advisory fee.
Insurance Agent
Synonyms: Versicherungsagent, Tied Agent, Multi-Agent
An insurance agent is an independent intermediary who arranges contracts on behalf and in the name of one or more insurers, acting either as a tied agent or a multi-agent.
Concept
An insurance agent is a commercial agent within the meaning of § 84 of the German Commercial Code (HGB), continuously entrusted with arranging or concluding insurance contracts in the name and for the account of one or more insurance companies. Unlike an insurance broker, an agent acts on the insurer’s side rather than the policyholder’s.
Tied Agent versus Multi-Agent
A tied agent (Ausschliesslichkeitsagent) is contractually bound to a single insurer and distributes only that insurer’s products. A multi-agent (Mehrfachagent), by contrast, represents several insurance companies simultaneously and can therefore offer a broader product range.
Registration and Supervision
In Germany, insurance agents are subject to a registration requirement under § 34d of the Trade Regulation Act (GewO) and are listed in the intermediary register. Their activity is further shaped by extensive information and advisory duties owed to the policyholder.
Legal basis: DE: § 84 HGB
Insurance Application
Synonyms: Versicherungsantrag, Proposal Form
The insurance application is the declaration of intent by which a prospective policyholder offers to conclude an insurance contract on specified terms.
Concept
The insurance application is the legally binding declaration by which a person offers the insurer the conclusion of an insurance contract on the terms stated in the application. It contains the information needed for risk assessment regarding the insured person or property, along with answers to the risk-related questions posed by the insurer.
Relevance to Underwriting
Based on the application, the insurer conducts its underwriting assessment and decides whether to accept, decline, or accept on modified terms (for example, with a risk loading or an exclusion clause). The information provided in the application is subject to the applicant’s pre-contractual duty of disclosure.
Binding Effect
The application generally binds the applicant for a defined period (the offer period). The insurance contract comes into existence only upon acceptance by the insurer; however, under provisional cover, interim insurance protection may already exist from the moment the application is submitted.
Agency Subsidies
Synonyms: Agency grants
Agency subsidies are performance-independent payments made by an insurance company to insurance agents to support agency set-up, which are not offset against commissions.
Distinction from commission
An insurance intermediary’s income generally consists of commissions or brokerage fees tied to the volume of business placed. Agency subsidies, by contrast, are performance-independent, one-off or recurring payments – for example to fund agency set-up or as a rent subsidy – and are typically not offset against commissions.
Time limitation
Agency subsidies are typically time-limited and serve as start-up financing for insurance agents in their build-up phase. Insurance brokers usually do not receive such subsidies, unless they take on, in an individual case, a task that would otherwise fall to the insurance company.
Practical relevance
Because agency subsidies form part of the remuneration structure in insurance distribution, they are subject to the transparency and conflict-of-interest rules of the Insurance Distribution Directive, which requires disclosure of remuneration arrangements to the customer.
Legal basis: EU: Insurance Distribution Directive