Setting up a service company in Germany

Managing agents wanting to set up a service company in Germany must be aware of the following considerations and requirements that make up the local environment.

Insurance supervision in Germany
Insurance supervision in Germany is based on the Insurance Supervision Act, the VAG. In Germany, insurance supervision is shared by the federal government and the federal states.

Tasks and objectives of insurance supervision

The insurance industry is based on trust: customers expect an insurer to be able to provide the contractually agreed services consistently and often over a very long period of time. In supervising insurance companies, the BaFin therefore fulfils important social and economic functions and contributes to the long-term stability of the entire financial sector. The legal basis for insurance supervision is the Insurance Supervision Act (VAG). The main objective of insurance supervision is to protect policyholders and beneficiaries of insurance benefits in accordance with § 294 VAG. It ensures that

the interests of the insured are adequately protected,

the permanent fulfilment of the obligations arising from the insurance policies and

the proper execution of business operations and compliance with the law.

In this context, solvency supervision is of particular importance. In particular, insurers must establish sufficient technical provisions, invest the assets in accordance with the principle of prudent business practice and comply with the commercial principles.

Division of responsibilities between the federal and state governments
Insurance supervision is divided between the federal and state governments, in line with the federal system of the Federal Republic of Germany.

On behalf of the federal government, the BaFin supervises the private insurance companies operating in Germany that are of considerable economic importance and the public-law competing insurers that operate beyond the borders of a federal state. The supervisory authorities of the federal states primarily supervise the public-law insurers whose activities are limited to the respective federal state and those private-law insurers that are of lesser economic importance.

Versicherungsaufsichtsgesetz (VAG) – Insurance Supervision Act
The Insurance Supervision Act (VAG) regulates the state supervision of insurers and pension funds operating in Germany. Every market participant that conducts insurance business or pension fund business must take into account state requirements that serve to establish and continue business operations. In particular, regulations to ensure that contracts can be fulfilled on a permanent basis and to protect customers are important. The Insurance Supervision Act also regulates matters concerning mutual insurance associations, foreign branches and participations. It does not apply to social insurance companies. Supervision is the responsibility of the Federal Financial Supervisory Authority (BaFin). This was established on 1 May 2002 and is responsible for the supervision of insurance companies, banks and securities issuers. Individual insurers are subject to supervision under state law.

Statutory provisions on insurance intermediaries in Germany are specified in a large number of different laws and regulations.

German Industrial Code (GewO): Determines need for official authorisation and responsibilities of chambers of industry and commerce (IHK).

German Regulation on Insurance Mediation (VersVermV): Details expertise and training obligations for intermediaries.

Federal State Regulations: Distribute supervision tasks between chambers of industry and commerce and trade offices.

Administrative Offence Proceedings: Handled by competent authorities defined by federal state law (IHK, trade offices).

Civil Law Provisions: Govern customer advice by intermediaries, particularly under the German Insurance Contract Act (VVG).

Categories of intermediaries:
The term ‘insurance intermediary’ is defined in Section 59 of the Insurance Contract Act (VVG). According to the legal definition, insurance intermediaries are agents and brokers. The most important distinguishing criteria are:

• An insurance agent is someone who is commissioned by an insurance company or another insurance agent to broker insurance contracts on a commercial basis.
• An insurance broker is someone who, on a commercial basis, acts as an agent for the principal to negotiate or conclude insurance contracts without being commissioned by an insurer or an insurance agent. The insurance broker acts exclusively in the interest of his clients.

The following are not insurance intermediaries:

• insurance advisors;
• but they require a separate licence from the Chamber of Industry and Commerce. Insurance advisors are those who, on a commercial basis, advise third parties on the agreement, amendment or review of insurance contracts or on the assertion of claims under insurance contracts, or represent them vis-à-vis the insurer out of court, without receiving any economic advantage from an insurer or being dependent on them in any other way (see Section 59 (4) sentence 1 VVG).
• Tipster: There is a ruling by the Federal Court of Justice [‘Tchibo’; Federal Court of Justice ruling dated 29 November 2 013 (Ref.: I ZR 7/13)] and a legally binding decision by the Wiesbaden District Court [‘Penny’; judgment of 14 May 2008, 11 O 8/08],
• employees of an insurance company who work as intermediaries.

In this context, it is important to note that an insurance intermediary may also have other licences in addition to their licence to broker insurance contracts, e.g. for financial investment brokerage (Section 34f of the German Trade Regulation (GewO)).