20.3.2023

IDD evaluation – Quality of advice and selling practices

The examples of good or bad quality of advice and selling-methods which I will present are intentionally taken from the non-life insurance sectors. Complexity of products is – from our point of view – not only linked to the investment options of life-insurances, but to the terms and conditions of the contracts as well. If the contract to be signed includes terms and conditions which are difficult to understand by the prospective policyholder, the quality of advice to be given by the distributors must be enhanced adequately.


This text is an enlarged version of the statement given at EIOPA’s Public Event on “Five Years of the Insurance Distribution Directive (IDD) – Time to Take Stock”, 10 March 2023. EIOPA website: https://www.eiopa.europa.eu/media/events/five-years-insurance-distribution-directive-idd-time-take-stock-2023-03-09_en


  1.  Example of health insurances:

Based on the figures published by the German health insurers1, we can only make a “best estimate” of at least 500.000 contracts of new business per year. But this figure should be sufficient to stress, why we are strongly concerned by the following distribution practice.

With regard to health insurances there is the legal obligation for prospective policyholders to disclose all medical treatments before the contract conclusion. The health insurer has the right to know these medical treatments by using a special questionnaire.

In consequence it is very important that the distributor urges the prospective policyholder to establish a comprehensive list of the former medical treatments.

  • Some questionnaires fix that the period to be considered encom­passes five years, but there are a lot of cases in which it is just outlined that the "last years" have to be disclosed.

  • In the same way it may be required to disclose any "illness" related to a medical treatment by a physician or by a hospital, but often the questionnaire just asks for "discomfort" or "infirmity”. To give you an example: have back pains to be disclosed only when being treated by an orthopedist, or in any cases, like lumbagos, which not had been treated by a physician?

There were reports that distributors even urge the prospective policyholders, not to disclose every case of illness, because otherwise there might be too many exclusions of covered risks or a too strong increase of premiums which the policyholder cannot afford.

We interprete these situations as a massive conflict of interest between the distributor and the prospective policyholder in the context of pre-contractual information duties. The distributor - paid on the basis of commissions - will receive his or her remuneration only, if the contract is concluded, and it is related to the amount of the future premium.

  1. Example of Payment Protection Insurance (“professional disability”)

There is a special kind of PPI which pays a temporary pension in case of disability of professional activity due to illness. The new business of this category of disability insurances amounts to more than 400.000 contracts per year in the German market in the last years (best estimate).2

Like health insurers, disability insurers have the right to know all medical treatments before contract conclusion by using the special questionnaire already mentioned. Additionally these disability insurances are mostly sold in combination with life-insurances, i.e. the main insurance contract is the life-insurance, and the coverage of the disability is only the “annex” contract.

From our perspective this cross-selling constitutes an example of “bad advice”. If the policyholder gets financially in trouble (for example by unemployment, debts, divorce, etc.), he may take into consideration the exemption of premiums or even the cancellation of the contract. But by doing so, he will not only have a severe loss of benefits with regard to the life-insurance (surrender values are usually much lower than the contributions already paid), but additionally he will get rid of his coverage of “professional disability”. And depending of his/her health and age, it will be much more difficult to find a new insurer for a sole ”professional disability” insurance than before.

Again, we see strong conflicts of interest between the distributors on the one hand and the prospective policyholders on the other, related to the pre-contractual information duties and to the bundling of products: pre-contractual information duties must fully be met, otherwise the very basis of the contract can be endangered. The bundling of life-insurance and of disability risk entails a strong increase of premium for just one contract and the commission to be earned. Instead of this, separated contracts for the coverage of disability, of death, and of long-term savings would be more suitable for most target markets with possibly unstable income or even interrupted professional activities.

  1. Example of home content insurances:

The new business of home content insurances amounts to about 200.000 contracts per year in average in the last years in Germany (best estimate).3

The specificity of home content insurance consists in the fact that usually - in case of insured loss - the indemnity is calculated following to the rule of “new value”, i.e. the indemnity is based on the prices when the furniture or other objects in the flat or house had been bought. But there is the risk of under-insurance for the policyholder, if the total value of his home content is not adjusted from time to time, especially if the policyholder buys new and expensive furniture. Due to the higher value of his home content, the premium has to be increased. If this increase of premium is not made, the insurer has the right to reduce the indemnity in case of damage proportionately. But this risk of under-insurance can be excluded by a special clause which many insurers offer, depending on the chosen tariff.

Obviously the average consumers do not know these judicial specificities, but they must be enabled “to make a well-informed decision”. In consequence we consider this judicial constellation as a typical example of enhanced information duties of the distributor to be explained to the prospective policyholder sufficiently.

  1.      Conclusions

The examples which I presented here have been taken from the German market, but I am quite sure that in the other national EU insurance markets similar problems exist.

The core problem is that very often basic judicial explanations by distributors are necessary in order to enable the prospective policyholder “to make a well-informed decision” following to article 20 of IDD. If there is a clause in the terms and conditions of the contract, which is essential for the understanding of the contract by the policyholder, it cannot be sufficient just to hand over the Insurance Product Information Document. Quite on the contrary detailed information by the distributors on possible reductions or even refusals of indemnity are crucial. The written personal recommendation given by the distributor has to be fully appropriate to the target market to which the prospective policyholder belongs.

The example of the undetermined pre-contractual questionnaire on medical treatments clearly shows that - in this case - the product oversight and governance rules are not fully implemented. Distributors have not only to urge the policyholders to give all necessary information correctly, but they have to give feedback to the product providers that the pre-contractual information documents must be adequate for the target market.

Additionally this example gives evidence on the fact that the quality of advice is endangered, if - due to premium increase or exclusion of risks - the policyholder may not be willing to sign the new contract. This is the consequence of a remuneration system based on commissions by which the distributors earn money only, if a new contract is concluded - and not for the advice itself. In consequence this conflict of interest may lead to bad practices of selling methods.

So, these are the issues which I wanted to outline, and I hope that I could encourage the other participants of this conference to present similar examples from their home insurance markets.


1 Cf. PKV in Zahlen 2021. Verband der Privaten Krankenversicherung, Köln, Dezember 2022.

2 Cf. GDV – Statistiken zur deutschen Versicherungswirtschaft. Branche in Zahlen, Tabellen 35 und 39, Berlin, September 2022.

3 Cf. GDV – Statistiken zur deutschen Versicherungswirtschaft. Branche in Zahlen, Tabelle 64, Berlin, September 2022.

Über mich

Ich heiße Christian Gülich (Jg. 57) und war schon immer an Kontakten ins Ausland interessiert. Während meiner Zeit an der Universität Bielefeld (Fachbereich Soziologie) war ich zu Studien- und Forschungszwecken in Aix-en-Provence, Paris, Strasbourg und Brüssel. Da liegt es nahe, dass ich mich beim BdV hauptsächlich um die EU-Kontakte (Konferenzen, Stellungnahmen o.a.) kümmere. Hier im Blog möchte ich über diese Aktivitäten berichten. Denn leicht ist es, über die EU als Moloch zu lamentieren, viel schwieriger ist es, diese komplexen Zusammenhänge verständlich darzustellen.