Supervision of Insurance Companies and Allocation of Costs
Pursuant to §5 of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz), the German Federal Regulatory Office for the Financial Sector (Bundesanstalt für FinanzdienstleistungsaufsichtBaFinBaFinBaFin (BaFin)) issues licences to insurance companies. 's responsibility is not restricted to issuing licences, but also covers expert and legal supervision of insurance companies. In this regard, operates only in the public interest (§81(1) of the Insurance Supervision Act), but does not receive any funds from the federal budget. On the contrary, must cover its entire costs from its own income, meaning that it is ultimately funded by the undertakings it supervises themselves. There are three sources of funding:
Fees are the remuneration for an administrative service (for example: for the initial licence to operate a life insurance business: €20,000).
- Penalty Payments
Fines in the event of unlawful carrying-on of business.
- Contributions/Allocated Amounts
The remaining and therefore major part of the costs incurred in operations is allocated to the supervised institutions by way of the allocation formula. The minimum amount in this regard is €250. The actual amount is allocated in the ratio of the gross premium income earned by the individual insurance company to the total amount of gross premium income generated by all insurance companies in the business year preceding the year of allocation. In this allocation, the gross premium income must be reduced by the full amount of surpluses or profit shares returned to the policyholders and by 50 per cent of the commission expenses from active reinsurance.
BaFin requires an advance payment of the contribution for the year of allocation as soon as the budget decided for this year of allocation has been approved by the German Federal Ministry of Finance. The advance payment is deducted later, and the amount of the contribution actually needed is ascertained, which also depends on what costs BaFin actually incurred and what other income it had. In the year 2009, BaFin levied an advance payment in the amount of approximately €30,000,000 from the entire insurance industry.
This allocation system is currently under discussion. The Central Bank of Germany argues in support of joining banking and insurance supervision under its umbrella. In this model, the Central Bank is intended to assume the solvency supervision of the insurance companies. This measure, which must certainly be regarded against the background of the international crisis of the financial markets, is intended to reinforce investor protection. The German insurance industry resists these intentions, arguing that the business models of banks and insurers are fundamentally different. It adds that the reliable functioning of the supervision through BaFinBaFin proved itself especially during the financial market crisis. Whether the proposal of the Central Bank will gain the necessary support from government circles cannot be foreseen yet. Should the insurance supervision be removed from 's scope of responsibility, the Central Bank argues in support of abandoning the allocation system and introducing a simple fee model that could include assumption of a "basic funding" by the Central Bank itself.
Supervision of Insurance Intermediaries and Allocation of Costs
It is not BaFinIHKG that is competent for licensing and supervision of the industry of insurance intermediaries that also comprise brokers, but the chambers of industry and commerce. These chambers are professional corporations under public law (§3(1) of the German Act on Chambers of Industry and Commerce ()). Being corporations, they are organised on the basis of membership and are region-related.
Membership in the local chamber of industry and commerce (competent for the relevant municipality or a certain region) is mandatory for persons engaged in business, thus also for insurance brokers (§2(1) of the Act on Chambers of Industry and Commerce). In their capacity as members, they are also the sponsors of the chambers of industry and commerce and fund them (§3(2) of the Act on Chambers of Industry and Commerce).
Funding is performed by payment of contributions that are made up of a base contribution and allocated amounts and the amount of which differs depending on the relevant local chamber of industry and commerce. With regard to the base contributions, a distinction is made between companies entered in the commercial register and companies not entered in the commercial register, such as insurance brokers.
The latter are generally not obliged to pay any base contribution if their profit does not exceed the threshold of approximately €5,000 per year. If the profit is higher, the minimum contribution is generally between €50 and €100 per year.
In addition to the base contribution, an allocated amount of 0.065 per cent to 0.35 per cent of the profit is levied; however, as a rule, an exemption of approximately €15,000 is granted. Assuming profit of €30,000 and deducting the exemption of approximately €15,000, an amount of approximately €15,000 results, which forms the basis for the calculation of the allocated amount to be paid. This amount then lies between €9.75 (coefficient (Hebesatz) of 0.065 per cent) and €52.50 (coefficient of 0.35 per cent).
Additionally, an insurance broker must also pay the costs for admission and registration in the register of intermediaries to the competent chamber of industry and commerce. Admission is granted by the competent chamber of industry and commerce if the following requirements are met:
- Proof of reliability
- Applicant living in sound financial circumstances
- Proof of conclusion of a professional liability insurance contract
- Passing an examination proving qualifications at the competent chamber of industry and commerce
In this regard, there are numerous exceptions for insurance agents resulting in the great majority of them not having to pass the examination proving qualifications. For insurance brokers, however, passing the examination proving qualifications is mandatory.
The costs for this admission procedure vary slightly depending on the individual chamber of industry and commerce; however, they are usually a few hundred euros, for example in Cologne:
Passing the examination proving qualifications €300
Licensing procedure for insurance brokers €250.