Disclosure and Exclusions: Still work to be done for a better understanding of insurance products?

In my presentation I would like to focus on two major examples in which terms and conditions of contracts are difficult to understand for average policyholders. This lack of understandability is linked as well to some bonus mechanisms for possible premium reductions as to the risk coverage of the policy and its exclusions. Therefore enhanced information duties by the intermediaries ought to emerge towards their target markets.
1. Bonus mechanisms of life insurances linked to fitness tracker usage
The first example of non-transparent terms and conditions which are difficult to understand for average consumers are special tariffs of a life insurer which link possible premium reductions to the use of fitness trackers.
To be precise, these tariffs cover the risk of professional disability caused by illness and not by accidents. In case of insured loss a pension related to the income of the policyholder will be paid as long as the illness persists.
If the policyholder regularly uses a fitness tracker in order to strengthen the health, the terms and conditions simply stress that discounts on premiums are possible. This special clause was strongly used for the marketing of this tariff stressing the importance of health-conscious behaviour.
From our perspective three major issues in these marketing and distribution practices were severely misleading for policyholders:
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First, it was only fixed that the policyholder had to use a fitness-tracker, but it was not disclosed if nevertheless certain activities - for example walks or relaxation exercises - were excluded or not.
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Secondly, it was not clarified enough at which time frequency the information of the sports activities recorded by the fitness tracker had to be transferred to the insurer. The clause only stated that, if the information was not provided “right in time”, the discount would not be given.
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Thirdly, it was not sufficiently disclosed by the marketing that discounts on premiums could only be given, if any surplus from the investment part of the premium had been accumulated before. In other words: if no surplus in this combined life-insurance contract had been accumulated, any premium reduction could be rejected, even though the sports activities and its recording by the fitness tracker were regularly performed by the policyholder.
Claims against these terms and conditions were made by our association1, and the Federal Court of Justice confirmed the prohibition of the use of these clauses in June 2024 due to “undue discrimination” (“unangemessene Benachteiligung”) of policyholders.
The Court stressed that insurance companies are required to review and adjust their contractual conditions to ensure transparency and fairness. In particular, they should clearly communicate how health-conscious behaviour affects insurance premiums and benefits, which is not only a legal requirement, but also crucial for customer loyalty and trust in the brand.
2. NatCat Insurance contracts related to the risk coverage of floodings
For home owners the protection against floodings usually is achieved by an additional NatCat Insurance which in some countries is obligatory, in others not. In those member states where this coverage is not obligatory, there is a high probability that the terms and conditions of these contracts are not sufficiently standardized in order to be easily understandable for the average consumer2.
Usually the coverage of the flooding risk for houses includes damages caused by water flowing from rivers or lakes or stemming from heavy rain events. The decisive point is that the water has to the flow on the surface of the soil.
Therefore damages stemming from groundwater are excluded. They are not excluded, if for example the pressure of the water of a nearby river is so strong that the groundwater is rising and finally appearing at the surface and then flowing into the house. In consequence the only way for a home owner to prove that the damage was caused by groundwater flowing into the house, and not just by a slow penetration of the cellar walls, is to record the flooding by a video camera. And that should be done even before any additional protection measures against the flowing water are implemented, because policyholders have to fufil their obligation to minimise possible damages at the same time.
From my perspective these judicial differentiations and obligations for the policyholder in case of such an event are an essential part of information duties by intermediaries at the moment of contract conclusion.
That is the same for the risk of flooding caused by a backflow in the urban canalisation. For example caused by a heavy rain event the urban canalisation may not be able anymore to drain off all the water on and under the streets. Many insurance contracts include the clause that the coverage is only given, if the home owner is able to proof that so-called backwater flaps in the drainage pipes had been installed. Additionally it must be proven that they have been regularly maintained. If this is not the case, indemnisation can be questioned.
Finally floodings can be caused by storm tides and endanger houses near the seaside. Usually storm tides are excluded from coverage, and this exclusion can be understood from an actuarial point of view related to the North Sea for example. But there are seas in Europe, mainly the Baltic Sea and the Mediterranean Sea, where there are no tides. In consequence when there are floodings at these seashores, they can only be caused by storms and not by the combination of storms and tides.
Nevertheless we had examples that some insurers refused indemnifications of insured loss for home owners by extending the notion of storm tides from the North Sea to the Baltic Sea, where in fact only a storm had occurred. Additionally the exclusion of the coverage in the terms and conditions of the contract was extended by some insures so far that even riversides and inland lakes having a direct link with the sea are excluded, too.
Again, not all insurers make these exclusions. But just because the terms and conditions by the insurers are so divergent related to these major risks, it is all the more necessary that intermediaries fulfil their enhanced information duties towards the prospective policyholders as their target market. And we know a lot of cases of home owners with residence at the Baltic Sea, where this had not been the case.
I hope that these precise examples incentivise the audience to outline similar examples of coverage exclusions from other EU member states.
3. Conclusion
By these examples I would like to highlight the difficulties to find an adequate balance between the following two opposites: on the one hand it is obvious that policyholders have obligations of information towards the insurer and – depending on the concrete cases – even obligations of prevention measures resulting from their insurance contract. On the other hand these obligations must neither be difficult to understand nor unexpected to appear in particular situations, in order to be fulfilled by the policyholders.
Therefore I see a crucial obligation of information to be given by the intermediaries to the policyholders not only based on the general IDD requirement that “insurance distributors always act honestly, fairly and professionally in accordance with the best interests of their customers” (cf. Article 17 (1) IDD).
Much more crucial in this context are the stipulations of the Delegated Regulation on Product Oversight and Governance Requirements of September 2017 (EU/2017/2358). Article 11 stresses the importance of “informing the manufacturer” by this wording:
“Insurance distributors becoming aware that an insurance product is not in line with the interests, objectives and characteristics of its identified target market or becoming aware of other product-related circumstances that may adversely affect the customer shall promptly inform the manufacturer and, where appropriate, amend their distribution strategy for that insurance product.”
From my perspective it is obvious that – considering the examples which I had given – intermediaries of the insurer which used this enlarged definition of storm tides even for the Baltic Sea should never have sold these contracts to residents living near this seaside. In the same way intermediaries selling these life insurance contracts linked to the use of fitness trackers should have clearly given feedback to their insurer that the terms and conditions of these contracts are not transparent and understandable enough and therefore not adequate for the envisaged target market of health-conscious policyholders.
I know, this is a rather complex judicial issue, and therefore I am looking forward to knowing your practical experiences.
This text is an extended version of statement by Christian Gülich (member of EIOPA IRSG – German Association of Insured (BdV) and Better Finance) at the EIOPA Event on forthcoming Third IDD Application Report – 09 April 2025 3
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BdV Press Release of 11 June 2024 on the final decision of the Federal Court of Justice (BGH) on the prohibition of non-transparent terms and conditions related to the use of fitness trackers: https://www.bundderversicherten.de/de/presse/pressemitteilungen/2024-06-12-ko-in-der-letzten-runde-vitality-tarif-von-generali-ist-intransparent-und-benachteiligt-die-versicherten-m2471.html
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For Germany, cf. „information sheet“ of BdV on insurance coverage related to heavy weather events: https://www.bundderversicherten.de/downloads/infoblaetter/allgemeine-lebenssituationen/35_Unwetter.pdf
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EIOPA Conferences and summits: Online public event on the Third EIOPA IDD application report (Agenda): https://www.eiopa.europa.eu/media/events/online-public-event-third-eiopa-idd-application-report-2025-04-09_en