It’s considered a symbol of Germany’s culture of stability and social provision: life insurance. There are around 88 million policies in the country, more than the country has inhabitants. But insurance brokers are probably not thrilled right now. Germany’s financial watchdog Bafin wants to reform life insurance regulations. This would be good news for many consumers – but a headache for brokers.
Bafin plans to significantly reduce fees on life insurance policies, causing problems for some of the 220,000 insurance brokers and advisers in the country.
An analysis by the consultancy Zeb, which was available to Handelsblatt in advance, shows that if sign-up commissions are capped, insurance agents will have to bear “significant loss of revenue and liquidity at the time of completion” that could even drive some into bankruptcy.
The consultancy firm has calculated two models. In the first scenario, the consultants work with an initial commission cap at 25 percent and a maintenance cap at four percent. In the second, the signing commission is also capped at 25 percent, but with the ability to raise the maintenance fee to as much as 5.5 percent. In both cases, the commission loss comes to around 45.7 percent.
“The change can cause brokers with low maintenance fees to be unable to cover the company's running costs and worst case, lead to bankruptcy.”
Bafin’s plans would have a massive impact on the brokerage industry. According to the financial market regulator, insurance clients should in the future only spend a maximum of 2.5 percent of the total contributions that are made during the contract length for brokers and sales organizations fees. A further 1.5 percent should be passed on to particularly good brokers on the basis of previously defined quality criteria – topping the reward at 4 percent.
With this, the German financial supervisors respond to changes in the Insurance Supervision Act that have recently come into effect and are implementing an EU directive. Meanwhile, Germany’s Green party wants to completely ban life insurance fees, as is already the case in Britain. In the UK, numerous brokers had to close down as a result of the new regulation.
Such a scenario now does not seem unrealistic in Germany. “The change in the liquidity flow can cause brokers with low maintenance fees to be unable to cover the company’s running costs and worst case, lead to bankruptcy,” warns Zeb manager Fabrice Gerdes. In fact, it is to be expected that insurance brokers that rely heavily on signing commissions would have to give up their business.
Carsten Herz covers asset management and insurance for Handelsblatt from Frankfurt. Stephanie Ott adapted this article into English for Handelsblatt Global. To contact the author: firstname.lastname@example.org.