Group insurance contracts are widely used in the German market for a variety of insurance classes, such as payment protection insurance, guarantee insurance and travel insurance. They are concluded by one policyholder to provide insurance cover for a number of beneficiaries that either automatically join the contract (e.g., because they are employees of a certain employer or members of an association) or accede to it by individual declaration.
Although German insurance contract law provides for a framework for group insurance contracts, their specific tri-partite structure is not comprehensively dealt with in the statutory provisions, in particular as regards consumer protection rules. Therefore, consumer protection associations and politicians constantly discuss whether beneficiaries under policies should be granted similar protections to policyholders by introducing additional rules, e.g., concerning information and advice, cancellation rights and their position when the policyholder is in default with premium payments or the group insurance contract is terminated or amended. The answer to these questions is not straightforward given that there are a wide range of different products which provide for insurance cover for third party beneficiaries. It should, however, be noted, that many insurers – as a matter of prudence – already grant beneficiaries a high level of protection on a voluntary basis.
So far, the legislator has introduced provisions to put beneficiaries in a position similar to that of the policyholder for payment protection insurance. However, it has not taken similar action with regard to other types of group insurance contracts.
The predecessor of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) addressed some aspects of group insurance contracts in three circulars released in the 1990s. Whereas neither BaFin nor its predecessor have the authority to establish the legal duties of insurers and policyholders towards beneficiaries, BaFin decided to review these circulars and to replace them with a new circular in order to clarify and strengthen its position. In its Circular 03/2021 (VA) – Notes on genuine group insurance contracts, published on March 3, 2021, BaFin sets out its expectations in terms of the principles that should be adhered to where group insurance contracts are concerned where the beneficiaries are consumers but the policyholder is not.
The circular applies to German insurers but also to insurers domiciled in the European Economic Area doing business in Germany with the exception of governance requirements (which are reserved to the legal framework of their home country). Occupational pension schemes as well as motor group insurance, business liability, cyber and D&O group insurance contracts are also excluded from the scope.
BaFin sets out some mandatory rules and information duties as well as a right of cancellation. However, it also simplifies the way the information should be provided by considering it sufficient if it is made available on the website of either the insurer or the policyholder. Whereas this seems to be an adequate reflection of contemporary digital ways of communication, it should be noted that it falls short of the requirements under general insurance contract law applicable to the communication with policyholders. Whether these requirements should apply also in relation to beneficiaries under group insurance contracts is a question which has finally to be decided by the civil courts which decide independently and are not bound by an interpretation of civil law by the regulator. Therefore, even if BaFin has published its interpretation of customer protection requirements, the given statutory and civil law framework continues to need to be taken into account.
BaFin grants insurers a transition period of six months to take the rules into account when drafting group insurance contracts. Insurers should also aim to adjust existing group insurance contracts within one year following the publication of the circular.
