Why Mass Insurance Policy Cancellations Are Illegal and Harmful to the Market
If you are an insurance policyholder, independent insurance agent, or financial advisor, a recent wave of mass policy cancellations by insurers should be a major concern. A pivotal legal opinion, commissioned by the AfW – Bundesverband Finanzdienstleistung e.V. (Federal Association for Financial Services), concludes that such collective terminations of entire insurance portfolios are not just aggressive business tactics—they are illegal. These practices violate core legal principles, severely damage trust in the insurance industry, and create chaos for consumers and intermediaries alike. The association is now demanding immediate intervention from the German Federal Financial Supervisory Authority, BaFin.
The Legal Basis: Violation of Fundamental Rights and Supervisory Law
The legal opinion, authored by Prof. Dr. Hans-Peter Schwintowski, provides a clear legal analysis. It states that mass cancellations breach fundamental legal tenets such as the prohibition of causing harm maliciously (§ 226 of the German Civil Code, BGB) and the principles of good faith and fair dealing (§ 242 BGB).
Furthermore, these actions constitute an abuse of the right to terminate and unlawfully circumvent the legally prescribed procedure for portfolio transfer as outlined in § 13 of the German Insurance Supervision Act (VAG). Prof. Schwintowski emphasizes that BaFin is obligated under § 298 (1) VAG to halt these illegal practices, as they threaten the orderly functioning of the market and policyholder protection.
The Real-World Impact: Chaos for Brokers and Policyholders
The consequences of these mass cancellations are severe and practical:
- For Insurance Agents & Brokers: They are forced to find replacement coverage for numerous clients at short notice, incurring significant additional costs and administrative burdens. Norman Wirth, Managing Executive Board Member of AfW, states: "The actions of individual insurers place intermediaries in impossible situations and leave customers without warning in a position where they are without coverage or have to pay significantly higher premiums."
- For Policyholders (Consumers & Businesses): They face sudden lapses in coverage, potential gaps in protection, and the stress of securing new, often more expensive, policies. For owners of homeowners insurance or property insurance, this is particularly critical, as such coverage is often a mandatory requirement for their mortgage. Losing it can trigger demands for additional collateral from banks or even jeopardize the loan itself.
The Legal and Financial Risks for Insurers
Insurers pursuing this path face substantial legal and financial exposure:
- Ineffective Cancellations: If a mass cancellation is deemed illegal, the insurance contracts may remain in force, leaving the insurer obligated to cover claims.
- Damage Claims: Policyholders may have valid claims for damages resulting from the unlawful termination, including costs for finding new coverage and any losses incurred during a coverage gap.
- Regulatory Sanctions: BaFin has the authority to impose sanctions and require corrective measures.
The Legal Alternative: Portfolio Transfer (§ 13 VAG)
The AfW and the legal opinion point to the existing legal mechanism designed for such situations: the portfolio transfer under § 13 VAG. This supervised process ensures a orderly transition, protecting the interests of all parties—the transferring and assuming insurers, the policyholders, and the intermediaries. It maintains continuous coverage and avoids the market disruption caused by mass cancellations.
Call to Action for Regulators and the Industry
The AfW is calling on BaFin to take immediate action to stop these illegal practices and uphold market stability. For insurance consumers and professionals, this situation underscores the importance of regulatory oversight and the need for insurers to operate within the bounds of contract law and supervisory regulation.
If you are affected by a mass cancellation notice, it is advisable to consult with your insurance broker or a legal professional to understand your rights. This legal opinion strengthens the position of policyholders and intermediaries, affirming that insurers cannot unilaterally abandon their contractual and legal duties through collective termination strategies.