German Insurance Association

Transcription

1 German Insurance Association Positions of German Insurers 2017

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3 Dear Readers, Germany is doing pretty well in the 2017 election year: prosperity and growth, tax income at a record high, debt reduction and increasing investments at the same time, and even an increase in the birth rate. Germany seems to be a solid rock in a world turning upside down. A world in which the breaking of norms has become the norm: in transatlantic relations and even in the European Union which has only known one direction until Brexit deepening and widening. Against this background, German voters will make a landmark decision in September. This decision will have many implications also for insurance companies. In pension policy it is about the question of whether expensive stop lines will shift the balanced system of pension provision towards an expansion of state-funded benefits, which would definitely not reflect the concept of intergenerational equity. We take a stand and call for strengthening the three-pillar model as a cornerstone of pension policy aiming at safeguarding the pensions of future generations by expanding occupational and private pension schemes (page 4). The digital revolution is on its way. As a result, we need rules which will protect consumers but also promote and enable innovation and growth. Digitalisation changes the value chains also those of insurance companies: it creates new distribution channels, products and insurance rates. If politics, the economy and society want to use these opportunities, data protection, too, has to face the new reality; the fundamental right to informational privacy then needs to be affirmed by strengthening data sovereignty (page 16). Our proposals in this context are as follows: secure IT infrastructures for communicating with our customers, transparent information on our products, a code of conduct for data protection, and a consumer policy concept based on the actual behaviour of consumers. Our consumer policy measures have been designed such that they support our customers in making their own decisions (page 22). In Europe, too, we will have to make some crucial decisions as a result of the Brexit vote, which refer to the future structure of the European system of insurance supervision. In view of the planned relocation of the European Banking Authority from London, a reform of the European Supervisory Authorities is being discussed. This would also affect the European Insurance and Occupational Pensions Authority. We also take a stand on this issue: the business model of insurers is fundamentally different to those of other financial services providers. Independent insurance expertise of the competent European supervisory authority is indispensable for our industry (page 8). Preserving efficient insurance supervision with the requisite expertise is one of our key policy objectives for the next few months. Our positions on these and other topics are summarised on the following pages. We are looking forward to continuing our dialogue before and after the German election. Berlin, April 2017 Dr. Alexander Erdland (President) Dr. Frank von Fürstenwerth (Chairman of the Executive Board) GDV Die Positionen der deutschen Versicherer

4 THE GERMAN INSURANCE ASSOCIATION AT A GLANCE* 450 MEMBERS 524,000 PEOPLE WORKING IN THE INSURANCE SECTOR ** m INSURANCE CONTRACTS EURO 209 bn BENEFITS *** EURO 1,510 bn INVESTMENTS * figures rounded, incl. Association of German Private Healthcare Insurers (PKV) ** employees (insurance companies and intermediaries), self-employed insurance intermediaries/advisors 2 GDV *** Positions benefits paid of German to policyholders Insurers and increase 2017 in benefit obligations towards policyholders in 2015

5 TOPICS OLD-AGE PROVISION AND LOW INTEREST RATES Pension policy needs a realistic approach... 4 EUROPEAN SYSTEM OF FINANCIAL SUPERVISION Maintaining the three-pillar structure of supervision... 8 SOLVENCY II AND GLOBAL REGULATORY INITIATIVES Regulation must continue to be predictable...10 TAXES Tax framework: fair, balanced, efficient...12 DISTRIBUTION REGULATION & INSURANCE MEDIATION Safeguarding the freedom of choice, enabling digitalisation...14 DIGITALISATION AND DATA PROTECTION Using the opportunities provided by digitalisation by taking care of security issues...16 CONSUMER PROTECTION Modern concept of consumer protection is based on differentiation...22 CLIMATE CHANGE Taking a new approach towards dealing with climate change risk...24 PRIVATE HEALTH INSURANCE PHI: Strong private pillar in a dual system...26 INSURERS AS EMPLOYERS Accompanying digital transformation in social terms...28 GDV Positions of German Insurers

6 OLD-AGE PROVISION AND LOW INTEREST RATES Pension policy needs a realistic approach Low interest rates and demographic change the current debate about the future of pension provision is based on these issues, in particular. For the purpose of ensuring intergenerational equity, the three-pillar system of pension provision needs to be strengthened. Unilateral strengthening of the statutory pension scheme, which has been the subject of an ongoing discussion, would not only place a disproportionate burden on the young generation, it is also not an adequate tool to effectively prevent old-age poverty. In fact, quite the contrary is true. Establishment of the Riester pension and retirement at the age of 67 have distributed the demographic burdens equally. This must not be put at risk after the election. Election years pose a particular challenge to any realistic and sustainable pension policy, which is required as a result of demographic change. The debate about higher stop lines applying to the pension level and contributions to statutory pension schemes is demonstrating this once again. Much has been achieved in the pension policy by establishing the Riester pension and setting the retirement age to 67. The pension system has become more sustainable and stable as a result of the finely balanced mix between moderately increasing contributions, declining pension level and a longer working life in the future due to growing life expectancy. Demographic burdens are equally distributed between the old and the young. This positive achievement must not be put at risk, in particular in light of the fact that the baby boomer generation is approaching retirement age at the end of this decade. The statutory pension scheme will continue to be a strong pillar of old-age provision. However, it needs to be supplemented by lifelong retirement income from funded pension provision to prevent old-age poverty and ensure an adequate standard of living in old age, at best. Private and occupational pension schemes must be further strengthened despite the ongoing low interest rate environment, which, without doubt, prevents many people from making old-age provisions. Nobody can escape the effects on statutory pension schemes resulting from a declining number of contributors and an increasing number of pensioners: a higher pension level or even a pension level declining at a lower rate results in higher contributions or in a longer working life. Lower contributions or even contributions increasing at a lower rate are only possible in case of a lower pension level or later retirement. Even without new stop lines applying to the pension level, employees will have to pay considerably higher contributions in the next decades: in 2045, social security contributions will add up to approx. 50 percent in total. This is due to the fact that the contributions to statutory health and long-term care insurance will also continue to rise as a result of demographic change. An important issue in terms of social policy continues to be the financial security of self-employed persons when they retire. They should not generally be included in the statutory pension scheme. Such an approach would obviously only strive for a short-term income effect on the statutory pension. However, this would be offset by additional expenses in the long term. What is crucial is that those affected are given the possibility to make respective old-age provisions which will meet their potential needs, and that they are able to choose the insurance provider freely. The basic or Rürup pension respectively had been developed exactly with this target in mind. Another important lever would be to also entitle (solo) self-employed persons to obtain a Riester subsidy. This way, flexible employment biographies would be taken into account more effectively and continuous pension provision would be facilitated. Making references to other countries, such as Austria, in the discussion about the future of pension provision, however, is not of much help. In fact, it is rather useless to pick and highlight individual aspects, but fail to look at the complex Austrian pension provision scheme in its entirety. For instance, in the current debate, the relatively high pensions in relation to the wage in Austria are being highlighted. It is being overlooked, however, that these only apply to the first year of retirement. After the first year, pensions only rise in line with the inflation rate but not in line with real wages as is the case in Germany. The more favourable demographic perspective in Austria as compared to Germany and the significantly higher financing costs are also frequently ignored. 4 GDV Positions of German Insurers 2017

7 Nonetheless, for the purpose of allowing for a comparison at European level, it continues to be appropriate for the EU to review whether and how pension reforms are being addressed, approaches already taken are being continued, and other challenges in terms of pension policy are being identified. Rising pension expenses, resulting from the demographic change, are jeopardising the financial capacity and sustainability of budgets in the EU countries. Furthermore, it is appreciated that the EU Commission wants to achieve an increase in supplementary provision schemes. The impact of new EU-wide standard products such as PEPP (Pan-European Personal Pension Product) will strongly depend on whether they are being outlined as real old-age provision products. Our positions Maintaining a reliable pension policy The response to demographic change cannot be to weaken reforms that have already been adopted long ago. The lifetime gained as a result of increasing life expectancy cannot solely be used for a longer retirement period. Adjusting the effective retirement age to the statutory retirement age would already bring about improvement with regard to labour market and employment, stabilisation of pension finances as well as pension provision of individuals. In addition to retirement at the age of 63 and an inaccurately financed pension taking account of child-raising periods (so-called Mütterrente ), high stop lines applying to the pension level imply new burdens for contributors. And despite the additional costs, old-age poverty will not be prevented this way: in absolute terms, a general increase of the current pension level will bring the biggest benefit to those with the highest pensions. People getting lower pensions, however, will receive a small increase only. A rational policy to fight old-age poverty must address the causes of low pensions, increase educational opportunities in our society, and prevent gaps in the employment history and breaks in making contributions to pension schemes. Strengthening occupational pension schemes The German law on the strengthening of occupational pensions (Betriebsrentenstärkungsgesetz) contains necessary and appropriate approaches to advance occupational pension schemes (bav). The spreading of occupational pensions went on but has been unable to keep up with the enormous increase in employment recently. In particular, there still is potential in small and medium-sized companies as well as among low-income earners. The financial support envisaged now, including a targeted model for low-income earners and allowances in basic income support in old age, provides key incentives for an increasing number of employees to make additional provisions for their retirement. The future increase in the level of tax-free contribution (8 percent of the contribution assessment ceiling) will facilitate processes for employers and provide more leeway for occupational pension schemes. Easier implementation of models of automatic deferred compensation optional for the employer and with an opt-out option for employees would also help to simplify matters. Regulations providing legal certainty at company level must be allowed with regard to small and medium-sized enterprises in particular, many of which are not bound by collective agreements. In any case, it is important that existing models will not be impaired by the new law on the strengthening of occupational pensions. Guarantees in occupational pension schemes continue to be a challenge. However, it is not comprehensible why they should be permanently excluded with regard to new models for occupational pensions based on collective bargaining agreements as a result of the currently low interest rates. Even though it is necessary to seek for attractive yield opportunities, it is equally important to have some predictability with regard to pension provision and a minimum level of coverage. The exclusion of guarantees should at least be relaxed in the retirement period. Fluctuating or declining pensions would be difficult for low-income earners, in particular. Advancing private pension schemes In addition, the Riester pension has to be strengthened. Occupational pension and Riester pension are GDV Positions of German Insurers

8 OLD-AGE PROVISION AND LOW INTEREST RATES supplementing each other. The Riester pension is the most common form of supplementary pension provision of low-income earners. Lifting cap from the Riester pension For the Riester pension to reach more people, it has to be adjusted to social realities and income development in recent years. The law on the strengthening of occupational pensions, which provides for a slight increase in the Riester basic allowance by 7 percent, has a symbolic effect, but does not go far enough. The basic allowance should be increased moderately from currently Euro 154 to Euro 200, while the child allowance should consistently amount to Euro 300. Disadvantage of the Riester subsidy as compared to occupational pension schemes (bav) Maximum annual premium subsidized in Euro 4,000 3,500 3,000 2,500 2,000 1,500 1, Source: GDV 2017 Cap at 2,100 High-income earners bav High-income earners Riester Benchmark pensioner bav Benchmark pensioner Riester The cap for Riester savers is 2,100. In occupational pension schemes, the upper limit is based on the contribution assessment ceiling of the statutory pension insurance (4 % of contribution assessment ceiling), i.e. the upper limit is higher and increases Above all, it is important to increase the maximum premium of the Riester pension that is eligible for tax subsidies and make it subject to index-linked increases. The rigid amount of Euro 2,100 per year is like a cap. As a result, the Riester pension is no longer able to perform its function, i.e. to offset a decline in the pension level in the first pillar, affecting a steadily increasing number of persons with statutory pension insurance. We are already at the point where about 15 percent of the Riester customers are no longer able to pay 4 percent of their insurable income, as was originally stipulated, into their Riester contracts, and the number is increasing. The benchmark pensioner will not be affected until For policyholders receiving 130 percent of the average income, the cap will already take effect in 2020 (cf. figure). The allowance procedure should be facilitated, for instance by making the Central Allowance Authority for State-Subsidized Pensions ZfA review the requirements for granting subsidies already at an early stage prior to the payment. Time-consuming and thus cost-driving claims to repay the subsidies could thus be prevented in many cases. Improving basic pension as important component of old-age provision So far, the attractiveness of the basic pension, which had been designed for self-employed persons, in particular, suffers from the fact that many persons with low income cannot benefit from the tax subsidy at all or not fully. The tax deduction for special expenses only has an effect when taxes actually have to be paid. This problem can be solved rather easily, without much effort on the part of fiscal authorities and providers: by stipulating that a subsidy of a minimum of 40 percent will always be granted for a premium of up to Euro 3,000, for instance. And there is another impediment that needs to be removed with regard to the basic pension. Protection against the reduction in earning capacity, which is important for self-employed persons, can only be offered at low cost if a pension for reduced earning capacity is only allowed to be paid, even as term annuity, until the payment of the old-age pension starts. Improving access to pension information Many people do not know what benefits to expect in old age and what the level of possible pension gaps may be. The need to consolidate information from all three pillars for the purpose of creating an overall perspective is rising. A role model for online-based pension information across pillars can be found in Denmark. Key success criteria for such a platform include an overview of the pension provision that is as comprehensive as possible, ease of use, and a large potential user group. Data protection and data security must be guaranteed. In addition, such an approach requires technically feasible and cost-conscious solutions which are being broadly supported by politics and the providers of pension products. 6 GDV Positions of German Insurers 2017

9 Fair sharing of burden in low interest rate environment Due to the fact that the interest rates are currently extremely low, the return on traditional life and pension insurance is declining. The costs of the low interest rate policy must be distributed fairly, and the risks arising from the current regulation must be reduced to allow for the development of attractive products even in a low interest rate environment. Readjusting the additional interest rate reserve (Zinszusatzreserve) Insurers are making additional provisions to the premium reserves (ZZR) to be able to fulfil the higher guarantees from previous years even in times of low interest rates. More than Euro 44 billion have been put aside for this purpose since 2011 Euro 12 billion in the last year alone. Thus, the guaranteed average actuarial interest rate already amounts to 2.3 percent today instead of 2.9 percent without the additional interest rate reserve. If the current period of low interest rates continues and the requirements on making additional provisions to the premium reserves are not being adjusted to this situation, the reserve will rise significantly by The rules on the additional interest rate reserve must now be readjusted to prevent an excessive creation of reserves from becoming a problem to companies and thus also to customers. Adjusting surrender values to the market value of bonds A low interest rate environment lasting over a longer period of time will create new problems. For instance, a sudden rise in interest rates may lead to a significant decline in the market prices of bonds. However, since these bonds are being carried in the balance sheets of insurers at a higher book value, so-called hidden losses are being created. If a large number of insurance contracts are being cancelled due to an increase in interest rates, these hidden losses might have to be realised, i.e. insurers might have to sell interest rate securities at a worse price to fully meet the liabilities of their customers. Hidden losses would thus turn into real losses, which, however, would be completely at the expense of the remaining customers. Only the policyholders cancelling their contracts would benefit from the profits from new investments at higher interest rates. To prevent this risk and to ensure fair treatment of all policyholders, it would be appropriate and necessary to adjust the current regulations on surrender values to the described situation already today. Making investments for the benefit of the customer Given the ongoing low interest rate environment, insurers seek to broaden their investment portfolio and diversify their investments. Potential investments in the infrastructure may serve as effective means in this context. Creating efficiencies by integrating private capital The insurance industry supports the plan of the German government to found a Bundesfernstraßengesellschaft (federal highway association). It is an effective means to secure the investments required for maintaining and expanding German highways in the long term. Funding, construction and operation of the highways would be consolidated at the federal level in the future. This way, inefficiencies, which resulted from different responsibilities and interests of the federal government, the individual federal states and state road planning authorities in the past, can be removed. The car toll envisaged simultaneously would be tied to a specific purpose and create a closed funding circle. The Bundesfernstraßengesellschaft is to remain in the possession of the federal government and must not be sold, which is being appreciated by the insurance industry. At the project level, however, the association should use the opportunity to integrate private capital and create efficiencies, since taxpayers will benefit from the participation of investors through public-private partnerships in the long term. According to a study by the Cologne Institute for Economic Research (IW), based on conservative assumptions, the project costs of building highways will be ten percent lower over a period of 30 years when being financed through public-private partnerships as opposed to traditional funding. The savings from shorter construction times and less frequent repair work due to higher quality will offset the higher financing costs of the private investor by far. GDV Positions of German Insurers

10 EUROPEAN SYSTEM OF FINANCIAL SUPERVISION Maintaining the three-pillar structure of supervision The European system of financial supervision has proved its effectiveness. The insurance industry is strongly opposed to abandoning the three-pillar model, as is currently being discussed by the EU Commission. When merging bank and insurance supervision into one institution, the characteristics of the business model of insurers must be ensured. The European supervisory system was reformed comprehensively after the financial crisis and has been based on a three-pillar model since January 1 st, There are independent European supervisory authorities for each sector of the financial market: EIOPA (European Insurance and Occupational Pensions Authority) is in charge of the insurance and occupational pensions sector, EBA (European Banking Authority) is in charge of banks (and the ECB (European Central Bank) of large credit institutions), and ESMA (European Securities and Markets Authority) is in charge of the securities sector. EIOPA is commissioned to coordinate the work of the national supervisory authorities (BaFin in Germany) in the insurance sector and to ensure coherent application of EU rules in the Member States. Independent insurance expertise of the competent European supervisory authority is indispensable for our industry. supervisory regime in detail for the first time in It noted in its report that the regime has basically proved to be effective. In March 2017, the EU Commission opened another consultation dealing with the activities of the three European Supervisory Authorities (ESAs). Its original intention was to focus on governance and funding of the ESAs. Due to the required relocation of the European Banking Authority (EBA) as a result of the Brexit, however, a wider debate has emerged. The mandate of the ESAs is one of the key issues of the consultation. Amongst others, it is being asked whether the existing powers are sufficient to ensure coherent implementation of the EU rules in the Member States. Another objective of the consultation is to identify new fields of activities. The EU Commission reviewed the newly established Brexit and its impacts: Will it stay the same? Structure of the European System of Financial Supervision (ESFS) European Systemic Risk Board (ESRB) Located at the ECB in Frankfurt am Main Joint Committee of the European Supervisory Authorities EBA* European Banking Authority National supervisory authorities EIOPA European Insurance and Occupational Pensions Authority National supervisory authorities * Operational supervision of the 130 largest banks is being carried out by the European Central Bank within the scope of the banking union. ESMA European Securities and Markets Authority National supervisory authorities Source: GDV 2017 The EU Commission is also considering a restructuring of the ESAs, for instance by merging EBA and EIOPA. One of the options in this context seems to be to have the supervision of companies (solvency supervision) and the supervision of market conduct/consumer protection (market supervision) each be carried out by independent supervisory authorities acting across sectors (so-called twin-peaks approach). In addition to the organisational structure, the EU Commission wants to clarify the future funding of the ESAs. So far, 60 percent of the funds have been provided by the budgets of the national supervisors and 40 percent have been provided by the overall EU budget. Funding being fully provided by the industry is the subject of a discussion going on for quite some time. 8 GDV Positions of German Insurers 2017

11 Our positions Strengthening independent insurance expertise at European level The three-pillar model of European financial supervision has proved to be effective. It makes sure that the different requirements of the three sectors are taken into adequate account and that the supervisory authorities have the requisite expertise. This is crucial since the business model of insurers is fundamentally different to those of other financial services providers. The differences between the insurers business model and those of banks and securities services providers are also reflected in the regulatory system of the Solvency II Directive. The mere fact that the European Banking Authority needs to relocate cannot be a reason to restructure the European supervisory system fundamentally. Instead, an objective analysis of the existing system as well as of the experiences of the stakeholders is required. However, irrespective of the future system, the competent European insurance supervisory authority needs to have an independent insurance expertise. Twin-peaks model is inappropriate German insurers reject the so-called twin-peaks approach. Strict separation between solvency and market supervision is virtually impossible in the insurance sector. It might result in unnecessary dual supervision and excessive bureaucracy in terms of harmonisation at the expense of the companies subject to supervision. Moreover, protection of the community of insurance customers must be ensured, i.e. when making decisions for the benefit of individual customers or small groups, the impact on the community always has to be taken into account. Supervisory authorities that strictly distinguish between solvency and market supervision are not able to provide this overall perspective. ESAs have to use existing supervisory powers efficiently the ESAs have not made full use of the powers which aim at ensuring coherent application of the EU rules in the Member States. To actually create a level playing field, resources must be prioritised adequately so that the existing powers can actually be used. As long as this does not happen, it is too early to discuss an extension of these rights. Leaving operational supervision with national authorities; European consumer protection authority not required Operational supervision of national insurance markets and companies should be left with the national supervisory authorities. Powerful and independent German insurance supervision by the Federal Financial Supervisory Authority (BaFin) is indispensable. Consumer protection, too, should be ensured subsidiarily by the national authorities according to the division of responsibilities between the EU and the Member States. A European consumer protection authority is not required. The ESAs already have sufficient powers to coordinate and review a coherent application of the EU consumer protection provisions in the Member States. This task, however, needs to be prioritised even more. Taking account of impacts of altered funding of ESAs The German insurance industry supports sufficient financial funding of EIOPA to enable it to carry out the tasks assigned to it as an independent authority. An uncontrolled extension of tasks and simultaneous funding by the industries subject to supervision, however, must, in any event, be prevented. In the future, a relevant proportion of the funding of the ESAs should still be provided by the EU budget. This way it is being ensured that the EU Parliament can influence the necessary prioritisation of tasks of EIOPA by means of its public budget control. The ESA regulations already provide for extensive rights of the European Supervisory Authorities. So far, GDV Positions of German Insurers

12 SOLVENCY II AND GLOBAL REGULATORY INITIATIVES Regulation must continue to be predictable Legislators and supervisory authorities have kicked off and implemented numerous regulatory initiatives in recent years in response to the global economic and financial crisis. The launch of Solvency II, which has been successful so far, is particularly important in this context. In order to prevent the effectiveness of the system from being jeopardised, no hasty alterations to this set of rules must be made. Solvency II is by far the most important regulatory project for the insurance industry. The paradigm shift from a balance sheet-based to a risk and market value-based set of rules has basically been successful. The experience gained in the first twelve months of its application shows that the system works. As expected, some details need to be adjusted, but there is absolutely no need for any significant interference in the set of rules. This applies to the ultimate forward rate (UFR), in particular. Short-term alteration of the calculation methodology cannot be justified in economic terms and would also be contrary to political decisions which have enabled the introduction of Solvency II. The European Commission wants to start evaluating core elements of Solvency II in This schedule must be adhered to. Adjustments are required, however, where rules are too complex for companies to implement them reasonably, which applies to some elements of the standard formula. Furthermore, the application of the principle of proportionality has been dissatisfying so far. Opportunities to reduce the burden on small companies, Successful launch of Solvency II Coverage ratios* in percent Overall market (incl. reinsurance and health insurance) Life insurance Property/Casualty insurance * Ratio of available own funds and SCR Source: BaFin 2016 which are being stipulated in the Solvency II Directive, are not sufficiently used or permitted in Germany. The development of a global regulatory and supervisory system advances in parallel to the Solvency II review process. So far, the future regulatory framework (Com- Frame) and upcoming capital standards (ICS) seem to be only relevant for large insurers operating across borders. However, it will probably be only a matter of time until global harmonisation also affects small companies Dec Mar Our positions Reviewing the Solvency II standard formula with a sense of proportion The European Commission must review the standard formula for the calculation of solvency capital requirements (SCR) by the end of The review will first be done by the European Insurance and Occupational Pensions Authority (EIOPA), which will subsequently submit specific proposals on alterations to the EU Commission. The main objective of this review should be to reduce the excessive complexity of the standard formula to make SCR calculation easier to handle by companies and supervisory authority. The alterations should by no means be used to further tighten the capital requirements for insurance companies. Due to the fact that even small alterations of the standard formula may change the solvency results significantly, all alterations proposed should first be tested within the scope of an industry-wide impact study. If the standard formula is to be altered, there must be sufficient time for the companies to make the necessary adjustments. Do not change Solvency II calculations on short notice keep UFR stable At present, altering the UFR is neither necessary nor reasonable. It should be kept at its initial level of 10 GDV Positions of German Insurers 2017

13 What is the UFR? 4.2 percent until the upcoming review of the Solvency II standard formula and all LTG measures. Altering the UFR must not be done in an isolated approach, but must be embedded in the overall context of the quantitative provisions. Anything other than that would thwart the will of the European legislators. Strengthening the principle of proportionality A stringent implementation of the principle of proportionality in the supervisory practice is essential to small and medium-sized enterprises, in particular. Options that facilitate the implementation of reporting and documentation requirements as well as the establishment of organisational structures should be used consistently to prevent competitive disadvantages caused by disproportionate regulatory burdens. This applies to the following topics, in particular: governance system, own risk and solvency assessment (ORSA), outsourcing, audit of the solvency balance sheet, and quarterly reporting. Moreover, it must be reviewed whether a significant increase of the thresholds might be appropriate for the application of Solvency II. Ensuring transparency in the development of global standards The progressive interconnection of international financial markets also increasingly affects the insurance industry. Appropriate supervisory structures must be established with regard to the emerging global insurance market to create a comparable regulatory environment for insurers operating internationally, in particular. The development of a Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), initiated by the International Association of Insurance Supervisors (IAIS) in 2010, therefore basically goes into the right direction. The same applies to the envisaged global capital standard for internationally active insurance groups ( Risk Based Global Insurance Capital Standard ICS ). However, new requirements can only fulfil their purpose if they can be handled by all companies. In order Life insurers provide long-term guarantees and incur long-term liabilities with regard to pension provision. Assessment of these liabilities and thus of the reserves to be created is based on the so-called risk-free interest rate term structure. The interest rate term structure is determined by the supervisory authority EIOPA based on the current market interest rates. Since there is no reliable market data for very long terms, the interest rate term structure needs to be extrapolated. The extrapolation is based on the interest rate which, from today s perspective, is to be expected for capital investments in the far future. This anticipated interest rate is derived as an approximation to the so-called Ultimate Forward Rate (UFR). So far, the UFR amounts to 4.2 percent. But even in 150 years, calculated from today, the interest rate which companies are allowed to apply to capital investments in their calculations will be below 4.2 percent. to ensure this, discussion and decision processes must continue to be transparent and be based on a constructive dialogue with all parties potentially involved rather than with an exclusive circle. Global regulatory initiative only in line with Solvency II For now, the development of globally harmonised capital standards (ComFrame, ICS) is only relevant for large, internationally operating insurers. In the long term, however, all companies will probably be involved. From a European perspective, it is important that the global regulatory initiatives do not thwart the rules and processes stipulated under Solvency II. It is crucial for the further development that internal models existing under Solvency II can also be applied with the ICS. This is being supported by the fact that the companies have invested huge amounts of money in the development of internal models. Above all, the risk profile of internationally active insurance groups can be reflected much more accurately by means of internal models as compared to a simplifying global standard. GDV Positions of German Insurers

14 TAXES Tax framework: fair, balanced, efficient A balanced and reliable tax framework for insurance companies and their products needs to be fair, efficient and growth-friendly, preventing negative, unintentional effects on insurance companies and their customers. Every state depends on a solid budget and steady tax income. Internal and external security, health, pension, education and culture can only be financed by the state if all economic operators pay their taxes and thus meet their social responsibility, including large business enterprises. This also refers to tax compliance; we therefore reject abusive tax arrangements. German insurers acknowledge their responsibility and will continue to make a major and reliable contribution to the financing of public tasks. We acknowledge our social responsibility and reject abusive tax arrangements. On the other hand, the state has to make sure that competitiveness, including tax competitiveness, will be ensured. This requires a continuous willingness to implement reforms to guarantee a tax framework that also promotes growth, for instance by strengthening a more revenue orientated corporate taxation. Moreover, tax legislation needs to respond to current economic developments in a balanced way, and therefore has to take account of special burdens on the companies resulting from the low interest rate policy of the central banks. Our positions Adequate and coherent implementation of the BEPS Project The so-called BEPS Project (Base Erosion and Profit Shifting) of the OECD aims at fighting harmful tax competition among countries and limit tax avoidance by multi-national companies. The individual measures under the BEPS Project should be implemented in a coherent way at least within the European Union. Additional burdens should not be imposed on companies which act in accordance with tax law, and additional organisational efforts for these companies should be limited. The possibility to strengthen own funds pursuant to Solvency II through the (capital market) emission of hybrid financial instruments (hybrid bonds, for instance), which is particularly important to insurance companies, must not be impeded or even made impossible by respective tax regulations. We call for adopting the OECD s proposal on BEPS action hybrid mismatch arrangements and hence for applying the new tax provisions on hybrid financial instruments to associated persons only. An obligation for multi-national enterprises to disclose information on their economic activities to the tax authorities in each country in which they do business (socalled public country-by-country reporting) should not be imposed, since trade and business secrets might be jeopardised this way. Such a disclosure obligation would have considerable disadvantages for European companies, which cannot be justified by an actual improvement of tax transparency. With regard to the introduction of a Common Consolidated Corporate Tax Base (CCCTB) in Europe, which is also being envisaged in this context, the specificities of national tax law should be taken into adequate account. Stipulating sustainable rules for premium refunds We have advocated for allowing insurance companies to deduct their payments to customers from their taxable income for a long time. Section 21 of the Corporate Tax Act then could be repealed. In case of a revision of Section 21 of the Corporate Tax Act, it should be largely based on supervisory law, for instance with regard to the determination of the maximum amount 12 GDV Positions of German Insurers 2017

15 of the so-called unallocated provisions for premium refunds permissible under tax law. Adjusting interest rates in tax law to low interest rate environment The interest rates relevant in tax law do not correspond to the interest rate level at the capital markets, which has been low for several years. While a government bond with a 10-year term has a yield of less than zero percent, taxpayers have to pay an interest of 6 percent annually on tax arrears. Furthermore, an interest rate of 5.5 percent, which is currently absolutely unrealistic, is to be applied to the discounting of provisions. Interest rates that are fixed irrespective of the situation of the capital market, as stipulated by tax law, result in an asymmetry at the expense of the taxpayers and in disincentives for fiscal authorities as well as for taxpayers. No abolition of the flat rate withholding tax The introduction of the flat rate withholding tax aimed at facilitating the complex taxation of capital income for taxpayers as well as for fiscal authorities. The approach has proved to be effective and should not be abolished after it had just been implemented. Otherwise, the considerable effort involved in establishing the procedure would have been wasted. Moreover, it should be considered that, when the flat rate withholding tax was being introduced, the deduction of income-related expenses was being abolished in parallel. Thus especially in cases of higher income the effective tax rate often is cosiderably higher than 25 percent. Designing VAT Group Taxation based on practical requirements The national incorporation requirements on the establishment of group taxation for value-added taxes should be adjusted to applicable EU legislation. Tax income of national, regional and local authorities and for the EU in Euro bn Increase as compared to previous year in percent Source: Datensammlung zur Steuerpolitik (publication issued by the Federal Ministry of Finance), 2015 edition, July 2016 (only available in German) * 2017* Financial transaction tax must not impair pension provision A financial transaction tax can only have the desired steering effect if it is being implemented at broad international level, or preferably even at global level, and thus does not allow for any possibility of evasion. Furthermore, it should not have a negative impact on private and occupational pension provision of citizens. The capital investments for insurance products covering pension provisions should therefore be excluded from this tax and any cascade effects should be prevented or reduced. Integrating fire protection tax into insurance tax * Estimation from 2016 on (tax estimation of Nov 2016) Insurance premiums for fire insurance and combined household and residential building insurance are subject to insurance tax as well as to fire protection tax. This creates unnecessary bureaucratic burdens for insurance companies and fiscal authorities. The purpose of fire protection tax financing of fire brigades could easily be achieved by guaranteeing a share of the insurance tax revenue to the federal states GDV Positions of German Insurers

16 DISTRIBUTION REGULATION & INSURANCE MEDIATION Safeguarding the freedom of choice, enabling digitalisation The Insurance Distribution Directive (IDD) is a milestone for the European insurance industry. It sets minimum standards for advice and distribution, applying to all distribution channels. Close to completion of the policy implementation, attention should be paid to ensuring that good, professional advice is being guaranteed when requested by the consumer. The IDD must be transposed into national law by the EU Member States by February 23 rd, Insurances cover people against essential personal and material risks, thus making an indispensable socio-political contribution. Due to its large socio-political significance, it is also in the interest of the legislator to promote an adequate distribution of private provision schemes. Customers also have to be motivated in the future to make supplementary private provisions to prevent gaps in provision, particularly in old age, and essential burdens in the event of damage. At present, various parameters cause some movement in the insurance market: companies have to respond to trends such as demographic change and digitalisation and at the same time cope with the challenges of the ongoing low interest rate environment and ever new regulations. It is therefore important that regulatory measures improve the distribution rather Consumers should decide which channel to use to take out insurance and whether or not they want to obtain advice. than making it more complicated. Customers should always be able to rely on being treated fairly, honestly and professionally. However, it should be left to the consumer to decide which channel they want to use to take out insurance and whether or not they want to obtain advice. Direct online conclusion of a motor vehicle insurance contract, for instance, should be made easier for consumers in the course of the IDD implementation and should not be made more complicated by any new regulations. The relationship of trust between customers and their insurance intermediaries is still very important. Insurers are therefore strongly committed to enhancing the quality of advice. The commitment to a high quality standard is being reflected in the code of conduct applying to the distribution of insurance products. Close to completion: Good, professional advice must continue to be guaranteed Implementation of the European Insurance Distribution Directive Q1 Q2 Q3 Q National level IDD taking effect on 22 Feb 2016 Government draft Expected conclusion of legislative procedure Implementation of delegated acts of EU COM as well as the authorisations to issue statutory instruments Insurance Contract Law (VVG) Trade, Commerce and Industry Regulation Act (GewO) Insurance Supervision Act (VAG) VVG-InfoV 1 and VersVermV 2 INSURANCE DISTRIBUTION DIRECTIVE (IDD) EU Commission 01 Feb 2017 Submission of technical advice by EIOPA to EU COM by July 2017: Submission of delegated acts by EU COM, submission to EP and Council 3 months for EP and Council Time limit for appeal against delegated acts Optional: 3 months Extension of objection period by EP and Council 23 Feb 2018 End of implementation deadline, application in the Member States Source: GDV ) Regulation on Information Obligations for Insurance Contracts 2) Regulation on Insurance Mediation and Advice 14 GDV Positions of German Insurers 2017

17 Companies that have joined the code of conduct for distribution therefore only cooperate with intermediaries who update their knowledge continuously and verifiably. On its own initiative, without being obliged by law, the German insurance industry has established some standards within the context of its well-advised training initiative. These standards go even beyond the training requirements of the European Directive. Our positions Do not impede digitalisation Exemption from the obligation to give advice, which has applied to insurance companies when selling goods/services at distance, such as through the Internet or phone, shall be omitted within the course of transposing the European Insurance Distribution Directive into German law. Instead, it is being provided for that customers shall actively deselect the compulsory provision of advice. From our point of view, however, no new barriers should be established in digital distribution. When the customer opts for being provided with advice by an insurance broker or insurance advisor, the insurer should accept the decision and should not be obliged to also provide advice to the customer. The legislator has acknowledged that such an obligation would not make any sense, but it has not stipulated it in the draft law. Derogation for fee-based remuneration The clear distinction between fee-based remuneration and commission-based remuneration for intermediaries is generally reasonable. According to the insurance industry, however, derogation is required to enable insurance brokers to receive remuneration from the consumer when distributing commission-free products (fee-based remuneration). This derogation would also be in line with the declared objective of the German legislator to strengthen the use of fee-based remuneration schemes. No retroactive effect of Product Oversight and Governance Formal provisions on Product Oversight and Governance (POG) are being implemented within the course of revising insurance distribution. Companies are being obliged to establish adequate internal oversight and governance processes which meet certain requirements. Details will be stipulated by the European Commission. It is not taken into account, however, that such processes have already been implemented by many companies. It is important for companies that the POG provisions will not have a retroactive effect. We therefore recommend clarifying in the context of the delegated act that the provisions shall apply to the product approval process of products which have been designed after the Insurance Distribution Directive has taken effect. Such a clarification would be in line with Article 25 of the IDD. Specifying complex products The circumstances under which an insurance-based investment product is considered to be complex are currently being discussed at European level. The intention of this specification is to warn customers of a product or not in case it is non-complex. When determining this non-complexity it must be considered that insurance-based investment products are principally easy to understand for customers, even though the generation of profits and the coverage of guarantees is quite complex for insurers. Guarantees provide coverage against losses. The discussion must therefore be based on the risk which customers bear and whether they are able to understand it. GDV Positions of German Insurers

18 DIGITALISATION AND DATA PROTECTION Using the opportunities provided by digitalisation by taking care of security issues New business models, faster processes and better service: digital connectivity provides great opportunities to consumers and the economy. For companies to be able to fully use these potentials, however, they must be given sufficient room for innovation. Digital communication channels and automated processes provide consumers and companies with faster and more efficient processes. They should not be impeded by technology-averse regulations. It is therefore necessary to develop a legal framework for the digital world. As a matter of fact, companies can only fully use the technical possibilities provided by digitalisation for the benefit of their customers when they are allowed to do so by law. Like other industries, insurers must be allowed to address their customers through the preferred channels online as well as offline. Insurers have always worked with data: extensive data analyses are required to develop new products Digital communication channels and automated processes should not be impeded by technologyaverse regulations. and assess risks. These analyses must still be allowed, since otherwise risks could hardly be calculated accurately. As a result of increasing connectivity, the security of data, however, will continue to be one of the largest social and political challenges of the coming years. Insurers are leading the way in this field for the purpose of making sure that their own systems continue to meet the highest security standards, and for the purpose of expanding their role as a risk carrier also with regard to digital risks. Cyber risk insurances will help to increase security in companies which take out insurance. There is a lot of catching up to do by small and medium-sized enterprises in this context. Our positions Promoting digital connectivity and innovation Promoting digital procedures based on integrated channels at companies and public authorities Media-related processes have a significant impact on the success of economic operators. They meet the expectations of customers on whose request customer service is increasingly provided through digital communication channels. Insurers already receive about one third of their messages via digital channels. Many customer requests can thus be processed and brought to a conclusion rapidly and efficiently. Protection and integrity of the customer data is our top priority in this context. With a view to enabling digital full service, the insurance industry calls for replacing non-integrated channels by secure and feasible electronic communication channels. Secure digital identity is an essential component to strengthen and ensure trust and protection of customers and companies alike. We therefore welcome the fact that the EU General Data Protection Regulation does no longer require that information be provided in writing. Processes which require consent on the use of personal data can therefore be designed electronically by default. Communication between companies and customers will be facilitated considerably this way. Insurers should also be allowed to use efficient and safe electronic processes when communicating with public authorities. Requirements of written 16 GDV Positions of German Insurers 2017

19 form must be further reduced and replaced by feasible electronic processes, and standardised electronic communication needs to be established in this context. Processes would be speeded up and made more efficient this way. Supporting fully automated decisions More powerful data processing systems enable insurers to finalise many processes without human intervention. Fully automated processes will make it easier to conclude contracts and authorise compensation payments automatically within a short period of time. When all information is being made available to insurers electronically, insured persons will obtain insurance coverage more promptly, and compensation will be paid more rapidly in the event of damage taking account, of course, of data protection and security. These efficiency gains should not be impeded by overly strict regulatory requirements. The insurance industry requires a permission for automated decisions not only in the contractual relationship but also in other legal relationships, for instance for the injured party in third-party liability insurance. In any case, it must continue to be possible to make decisions in a fully automated way and thus meet the demands of customers. Strengthening as communication channel When communicating with their insurer, consumers should be allowed to decide which channel they would like to use for the purpose of communication. Even though many insurers provide very secure electronic communication channels by now, for instance through secure customer portals, many consumers prefer less secure communication channels, such as , for their requests. They find it difficult to understand why they do not get a prompt response by the insurer but have to wait for several days until they get a respective letter. Data protection authorities should not stipulate any provisions on the use of communication channels to enable companies to meet their customers request for direct and fast communication via . Feasible and customer-friendly solutions are required in this context, allowing the processing of requests also by means of . Creating fair rules for digital competition Advancing a level playing field for traditional and new competitors Current regulatory initiatives such as the EU Commission s strategy to create a digital single market or the German government s considerations on platform regulation will have a crucial impact on the market environment of the digital economy. When designing a regulatory framework for the digital world, it is important to ensure a level playing field between the different providers to enable the best companies to prevail in this environment. Companies, no matter from what kind of industry, must be able to interact at a level playing field. It is not only the equal treatment in terms of legislation and regulation of newcomers such as FinTechs and traditional providers, and an innovation-friendly legal framework, which are crucial in this context, but also the prevention of data monopolies, for instance on connected vehicles (cf. below: Connected vehicle). Only this way the opportunities provided by digitalisation can be fully used in a competitive market in the interest of insurance customers, providers, and the society. Creating de minimis thresholds for legal certainty in the sharing economy Clear distinction, providing legal certainty, between private and commercial transactions, is an important requirement for the provision of insurance coverage that is tailored to the customers demands. In third-party liability and legal expenses insurance there are special products for covering risks arising from commercial activities. In the sharing economy, however, for instance in the mediation of taxi services or private accommodation, the boundaries between private and commercial services are blurred. Thresholds or de minimis thresholds, below which activities of the sharing economy are to be GDV Positions of German Insurers

20 DIGITALISATION AND DATA PROTECTION categorised as private activities, could provide a reasonable distinction in this context. Data protection in the digital age Adjusting modern data protection to the reality In the age of digital connectivity, the principle of data minimisation needs to be advanced. Even though data should still only be processed to the extent necessary for the respective purpose, the concept of data protection must face a new reality. By 2020, approximately 5.4 billion devices will permanently collect data and communicate with the Internet and frequently also record personal data in this context. Informational privacy also means to give users the authority to permit various forms of processing of the data collected by and on them. Only this way progress is possible in a digitalised world. Implementing national data protection provisions by the end of 2017 When adopting the European General Data Protection Regulation, the European legislator has deliberately left some gaps to allow the Member States to introduce provisions in specific areas. The German legislator should adopt the implementing act which is filling in these gaps before the end of this legislative term. Only then will companies obtain the legal certainty which they require for making investment decisions. Should a national adjustment take effect not until after May 2018, there is the risk of unnecessary double investments, first for an adjustment to the European data protection provisions and subsequently for an adjustment to the German implementation. Even though harmonisation of data protection law in the EU is generally desirable, these opening clauses should be used for a practice-related application of the data protection law. The insurance industry requires clear provisions on statistics with health-related data and fully automated decisions, in particular. Enabling the statistical use of healthrelated data Insurers must base their calculations on accurate and comprehensive data to be able to adequately assess risks and develop reliable insurance rates and products. They also need reliable statistics to meet the supervisory solvency requirements (Solvency II). Data from events of claims, including health-related data in the context of insurance of persons as well as general third-party liability and motor vehicle liability insurance, must be included in the statistics. Fitness rates and telematics are perceived as being fair Approval to individualised rates in motor vehicle insurance and health insurance (in percent) Motor vehicle insurance Everybody should pay the same, irrespective of the driving style and personal data. Telematics data should not be taken into account, the insurance premium should continue to be based on age and yearly mileage. Careful and defensive drivers should obtain discounts and thus pay less. Risk-taking drivers, e.g. speeding drivers, should pay more than they currently do. Source: GfK 2016, representative survey Health insurance Everybody should have to pay the same, irrespective of their diet/personal fitness. Persons who work out and eat healthy should have to pay less for insurance. Persons who do not do anything for their health should have to pay more. 18 GDV Positions of German Insurers 2017

21 With the EU General Data Protection Regulation, the European legislator has left it to the national parliaments to continue to allow and outline requirements on the use of health-related data for statistical purposes. The German legislator should definitely use this opportunity to enable insurance companies to continue to compile complete and representative statistics. If each customer had to consent separately to the use of their data for statistical purposes, the statistics would be biased and inaccurate due to a lack of data, which could not be offset. This is all the more true for injured third parties in third-party liability insurance, who do not have a contractual relationship with the insurer. Otherwise, additional safety margins would have to be factored in, which would make insurances more expensive. Moreover, the administrative burden of an additional consent would cause additional costs. It should be underscored that no conclusions on individual customers can be drawn from the statistics which insurers prepare for the purpose of calculating insurance rates or meeting solvency requirements. Basing the discussion on digitalisation and insurance rating on facts Increasing digitalisation also changes the products and rates of insurers. Risk assessment and risk classification can be enhanced. There is also great potential with regard to providing better support to customers in reducing risks and taking preventive actions and thus with regard to enhanced social risk management. Digital connectivity also enables insurers to use new data for product innovations. Examples include telematics rates in motor vehicle insurance or programmes in life insurance, which reward good fitness data with bonuses. The development of these models and products is still at an early stage. As is the case with every new technology, increasing digitalisation will create many opportunities, but it will also create new challenges. There are no indications, however, that a more individual premium calculation, for instance, enabled by digital Social exchange on the impacts of digitalisation on insurance products and rates is important. approaches, might impede access to insurance coverage for certain groups of insured persons. Given the existing competition and the freedom of choice of the customers associated with it, there is no risk that informational privacy might be restricted. What kind of innovative insurance solutions will gain a foothold in the market will be determined in the competition for customers in the future. The insurance industry is very much aware of its social responsibility in the digital age. It is important that there is a social discussion about the impacts of digitalisation on insurance products and rates. Insurers are willing to take an active part in the social discussion. Strengthening uniform interpretation of data protection law An increasingly globalised economy also needs cross-country provisions on data protection. The insurance industry has therefore supported the European General Data Protection Regulation early on. A harmonised European data protection law, however, must also be interpreted uniformly by the European supervisory authorities. For instance, the federal structure of data protection in Germany must not result in considerable regional deviations with regard to the interpretation of data protection provisions. Competing views of different authorities result in legal uncertainty. Companies, however, must be able to rely on interpretations of data protection provisions. As is already common practice at EU level, a consistency mechanism between the federal data protection authorities should therefore also be established in Germany. Obliging German data protection authorities to cooperate with each other would prevent an inconsistent interpretation of data protection law in the individual federal states. GDV Positions of German Insurers

22 DIGITALISATION AND DATA PROTECTION Enhancing security in the Internet Taking cyber risks seriously Many consumers and decision makers in small and medium-sized enterprises underestimate the risk of cyber threats. Their awareness of cyber risks needs to be raised. The insurance industry supports the German government in its approach to strengthen prevention, and participates actively in enhancing IT security in small and medium-sized enterprises, in particular. VdS Schadenverhütung GmbH (VdS), a subsidiary of the German Insurance Association, has designed a so-called Quick-Check on cyber security. The self-assessment tool enables small and medium-sized enterprises to obtain information on the status of their IT security. In addition, VdS has developed an auditing process on information security, and provides a respective certificate (VdS 3473) confirming that the company subject to the audit has implemented adequate measures to protect itself against major cyber threats. Such auditing processes can help to prevent cyber risks effectively. Moreover, the German Insurance Association has developed a coverage concept model for a cyber policy which protects small and medium-sized enterprises against the impacts of cyber-attacks. Germany is thus the first insurance market in Europe which provides such an insurance policy for SMEs nationwide to strengthen Germany as an industrial location and to strengthen every small and medium-sized entrepreneur operating in Germany. Providing a framework for secure Smart Homes The equipment of everyday objects with network functionality is progressing further. In many cases, however, the cyber security is questionable. Manufacturers should therefore be obliged, amongst others, to provide security updates and respective support for Internet of Things and Smart Home products for a minimum period. The minimum period for the Germany is the first insurance market in Europe which provides cyber insurance for SMEs nationwide. provision of support and updates should be based on the respective product category. For instance, the support and update period for Smart Home devices which are firmly connected to a building (e.g. IP-enabled cameras, intercom systems) should at least be 10 years. Furthermore, consumers should be actively informed about the expiry of the support period so that any devices that could easily be attacked can be identified and replaced. Penetration tests should be obligatory for security-relevant devices (e.g. IP surveillance cameras). The results of these tests should be available to everyone. Moreover, devices such as connected refrigerators, washing machines and coffee machines should have to be equipped with a so-called legacy mode so that the devices can also be operated without the network functionality. Advancing secure IT infrastructures and online identification Secure transmission channels are crucial for the security of digital data. Especially when it is about highly sensitive data, electronic communication needs to be protected. Secure IT processes for authentication must be strengthened to enhance secure online communication with customers. Any solutions regarding secure communication must be closely based on the everyday life of consumers. Insurers have already presented a possibility for secure, web-based communication through a cloud: the Trusted German Insurance Cloud (TGIC). With the certification of the TGIC, insurers together with the Federal Office for Information Security (BSI) have contributed to the establishment of security stan dards for cloud solutions. Minimum standards should be established in all industries to protect electronic business processes. 20 GDV Positions of German Insurers 2017

23 Connected vehicle No weakening of the protection of road accident victims A key task of motor vehicle liability insurance is to provide reliable protection to the victims of road accidents. It is irrelevant for their compensation whether the driver has made a mistake or whether a technical system has failed. The insurance covers the fault-based liability of the driver as well as the strict liability which results from the risk posed by each vehicle. These clear as well as proven rules provide maximum protection and security for the victims of road accidents. There must not be any changes in this context. Of course, the proven model of motor vehicle liability insurance also comprises automated driving. Product liability of the manufacturer would not protect the victim of a road accident sufficiently in case of any defects of an automated vehicle, since it is neither designed nor appropriate for the compensation of victims of accidents. A victim of a road accident cannot be required to prove a possible product defect to the car manufacturer. The first and direct contact of a victim of a road accident therefore continues to be the motor vehicle liability insurance company. It compensates the victim of an accident and will work with the car manufacturers to find feasible solutions in case remedies might be pursued. That is the perfect solution also with regard to an automotive future in which it will more frequently be the automated car that accelerates, breaks, and steers, and not the driver. Coverage for any situation Motor vehicle liability insurance compensates victims of road accidents, irrespective of who or what caused the accident. Fault by the driver Defect of the vehicle Other defects Source: GDV 2017 Who or what caused the accident? A driver makes a driving mistake. A car manufacturer makes a mistake in the construction. A car manufacturer uses defective parts of a supplier. A car repair shop makes mistakes during the repair. The sensors of an automated car fail. Errors in a software update of the manufacturer. Incorrectly programmed traffic light at a junction shows green for all directions. Hackers change the software of an automated car. Of course, the proven model of motor vehicle liability insurance also comprises automated driving. Who compensates the victim? Motor vehicle liability insurance of the vehicle owner Can the insurer pursue remedies against the perpetrator of the accident? In principal, no recourse; only in case of violation of obligations (hit and run, DUI, etc.). If there is proof of a construction error. If there is proof of a product defect. If there is proof of the fault of the car repair shop. If there is proof of a product defect. If there is proof of a software error. If there is proof of the fault of the traffic light operator. If perpetrator is being captured, there is evidence of the offence, and perpetrator is solvent. Creating open and standardised interfaces for motor vehicle data Within the course of the ecall introduction starting on March 31 st, 2018, a standardised and secure interface that is accessible without discrimination should be established for the purpose of sharing motor vehicle data. Such an open and standardised interface ensures that consumers have control over their data and are free to choose to whom they make their motor vehicle data available. Only in this case are consumers able to opt for the best offer and preferred service provider, be it the car manufacturer, an insurer, an automotive shop or an automobile association. That creates a level playing field. It must be avoided that only car manufacturers have sole access to the motor vehicle data. Otherwise, other service providers would be excluded and individual markets would be foreclosed permanently at the expense of fair competition and the diversity of products/services. GDV Positions of German Insurers

24 CONSUMER PROTECTION Modern concept of consumer protection is based on differentiation The German government has initiated numerous consumer policy measures and has further strengthened the rights of consumers in the 18 th legislative term of the German Bundestag. The insurance industry supports this development and participates in the discussion about a modern concept of consumer protection based on a differentiated notion of consumers. The increasing dynamics of global and social changes affect insurance companies and consumers alike. The requirements on the economy and society and each individual consumer are growing. This is all the more true since digitalisation, demographic change and the continuing emergence of distinct lifestyles constantly require new solutions. In addition, other risks such as climate change and the ongoing low interest rate environment have a lasting impact on consumers and the society as a whole. Consumer policy measures must be based on the actual behaviour of consumers rather than on an idealised picture. They should be geared towards supporting consumers in making independent decisions. At the same time, the needs and expectations of consumers become increasingly heterogeneous. In an increasingly complex world, the number of consumers who use digital services to get information on products and services before making a decision is growing. Comparison and review sites, for instance, provide processed information on different products and providers. Information and test reports can support consumers in their decision-making process. While some developments of increasing digitalisation empower consumers, others make them more vulnerable. The insurance industry therefore uses a differentiating approach towards consumers and is prepared for a broad range of consumers. Based on this perspective, the industry participates in the discussion on a modern concept of consumer protection. The focus should continue to be the protection of the independently acting consumer whose rights are continuously strengthened through improved transparency on products and services. Our positions Preserving the ability of consumers to make their own decisions Efforts at European level to focus more strongly on a preventive approach in consumer protection must not result in the fact that the actual needs of consumers are not taken into account by political and regulatory initiatives. In the light of increasing digitalisation of all industry sectors, product innovations would otherwise be jeopardised and the variety of supply would be restricted at the expense of consumers. Consumer policy measures must therefore be based on the real behaviour of consumers rather than on an idealised picture. They should be geared towards supporting consumers in making independent decisions. The freedom of decision of consumers is also worthy of protection. Consumers need reliable as well as comprehensible information to be able to make well-informed decisions. Merely seeking to provide more information, however, fails to address consumers needs. Indeed, it thwarts the objective of simple and clear consumer information. Against the background of previous experiences with information obligations, an open debate on what kind of information consumers actually want and require for making well-informed decisions is necessary. After all, the key issue is that consumers continue to be able to act independently and that they are free to choose the products they want. 22 GDV Positions of German Insurers 2017

25 Avoiding overlapping responsibilities The insurance industry supports an effective division of responsibilities with regard to institutional consumer protection. It is important in this context that the powers and responsibilities are clearly defined. In its role as insurance supervisory authority, the Federal Financial Supervisory Authority (BaFin) is also in charge of collective consumer protection. It has all the necessary intervention tools to protect the entirety of consumers effectively. Individual consumer interests are being safeguarded by arbitration bodies, ombudsmen and courts. The new consumer policy stakeholders can make an important contribution to further enhance the situation of consumers. Based on its scientific expertise, the Advisory Council for Consumer Affairs (SVRV), for instance, can identify consumer policy trends as well as challenges and developments that might go into the wrong direction, and thus provide valuable information on evidence-based consumer protection. Findings gained from in-depth market monitoring by market observers can also increase consumer confidence. A realistic understanding of the market and comprehensive quality management are required for this purpose. Clear differentiation between the informative function of market observers towards the society and the sovereign responsibilities of the financial supervisory authority, however, will still be required in the future. Strengthening consumer skills In terms of social policy, it is more important than ever before that consumers make private provisions. Basic financial knowledge is indispensable for consumers to make informed decisions on insurance issues. Only then are consumers able to identify risks and mitigate risk by means of making appropriate provisions. In terms of educational policy, relevant key skills need to be taught even more intensively, and learning contents need to be adapted to new requirements. In light of this, it is being welcomed that some German federal states put a stronger emphasis on consumer education in their curricula. Consumer model of the insurance industry The insurance industry sees its customers as responsible citizens who are making their own decisions as they see fit. However, it is also clear that there is no such thing as an ideal consumer who has the appropriate knowledge for all decisions they take. The insurance industry therefore uses a differentiating approach towards consumers and is prepared for a variety of consumers ranging from competent to vulnerable. Differentiating in terms of consumer policy, however, also means that insurances balance out risks in the community of insured persons. Due to this specificity of insurance products, consumer policy measures should always try to achieve an adequate balance between individual consumer interests and the interest in protection of all consumers being pooled in a community of insured persons. Consumer policy principles of the insurance industry* 1. Offering products which meet consumers needs 2. Providing reliable and transparent information 3. Strengthening financial education for consumers 4. Providing freedom of choice in access to insurance coverage 5. Justifying trust in products/services 6. Protecting data effectively 7. Enabling consumers to make independent decisions about their insurance coverage 8. Ensuring effective consumer protection archi tecture with clear division of responsibilities *) published on January 25 th, 2017 GDV Positions of German Insurers

26 CLIMATE CHANGE Taking a new approach towards dealing with climate change risk So many natural disasters in so little time. Storms with heavy rain and hail move across Germany in the early summer of 2016, bringing along huge amounts of water carrying mud and debris. Small rivers rise at an incredible pace, burst their banks and sweep away homes and businesses. Simbach, Braunsbach, Ansbach to what extent are these disasters caused by climate change? What kind of protection is required, what kind of preventive measures can be taken? Never before had storms accompanied by heavy rain caused such a large amount of damage in such a short period of time in Germany. Within five days at the end of May/beginning of June 2016, the low-pressure systems Elvira and Friederike caused an estimated damage of Euro 1.2 billion. Even though Avoiding greenhouse gas emissions is less expensive than the unpredictable follow-up costs of an unabated rise in temperature. no one can claim that the events were a direct impact of climate change they give us an impression of the scenarios which we may expect if the global average temperature continues to rise. It is therefore all the more important to invest in the prevention and reduction of greenhouse gases. The Potsdam Institute for Climate Impact Research is not the only one to claim that the prevention of greenhouse gas emissions is less expensive than the unpredictable follow-up costs of an unabated rise in temperature. Climate protection and climate change adaptation must go hand in hand. For instance, there is still a huge potential in reducing energy consumption in the industry, in the mobility sector as well as in privately owned building stock. Furthermore, buildings and infrastructure must be better protected against extreme weather events. Only a very small proportion of the buildings in Germany are sufficiently prepared for extreme weather conditions such as hail, heavy rain and landslides phenomena which give rise to increasing risks as climate change is progressing. Protection goals must be expanded in the context of planning and construction standards. They must standardise climate protection measures as well as effective tools to better illustrate the increased vulnerability of construction materials and architectures as a result of an increasing occurrence of extreme weather conditions. Much could be achieved by altering building regulations as well as adjusting regional land use planning, zoning and development planning. The correlations between the adaptation to climate change (altering urban space, land use, for instance) and coping with its impacts (heavy rain, floods, for instance), in particular, could thus be identified and managed earlier. Our positions Implementing flood control programme with minimal environmental impact and longterm view After the 2013 flood, a national flood control programme was being developed, which bundles all crucial measures to be taken for the purpose of flood control. The focus should be put on sustainable measures such as restoration and dyke relocation. Consistent implementation and appropriate funding of all measures over a long period of time is essential in this context. Reinforcement or heightening of dykes, in contrast, should only be a temporary measure, since it only creates a temporary and thus false sense of safety. Applying findings from flood control to land use planning and adjusting standards Local authorities control the development of towns and municipalities by means of land use planning. Local and regional planning authorities should include findings and experiences from flood and heavy rain events into urban development and land use planning. Architects, engineers, project developers and insurers should be included in the process to allow for proactive damage prevention. Only an overall assessment will allow for limiting the risks. 24 GDV Positions of German Insurers 2017

27 Legal provisions on settlement development (Federal Building Code and Federal Water Act) should be outlined such that the risk of damages caused by floods, heavy rain, sewer backup and flash floods in urban areas is being mitigated. This can be achieved when the water runoff is not being disturbed and flood retention is being improved. Designated flood zones must actually be preserved in their function as retention areas. New building zones should not be allowed in these areas as a matter of principle. Expanding protection goals enshrining protection against impacts of climate change in legislation In addition to climate protection, protection against the impacts of climate change (heavy rain, hail, for instance) should also be stipulated in planning and construction law. This protection goal should be an overarching goal. So far, the protection against floods has only been stipulated in the Federal Water Act but not in construction law, for instance. Reviewing existing development plans for potential risks, strengthening site and property protection Most of the development plans were adopted at a time when many of the scientific findings on extreme weather conditions and climate change had not yet been available. Cities and municipalities should review existing development plans in areas adjacent to rivers and streams, which are prone to flooding, as well as corresponding land-use and zoning plans. Where no development plans yet exist, the requirements of flood management should be considered in the planning process. A coordinated interaction of site and property protection should be emphasized in this context to achieve an effective level of protection. Example heavy rain: rainwater management protects the site, while at the same time buildings need to be protected from unwanted intrusion of water. It is hard to believe that, 15 years after the devastating flood of the Elbe River in 2002, flood-proof construction is still not an integral part of building regulations. Expenses are increasing Non-life insurance: Annual claims expenditure through storm, hail and natural hazards in Euro bn* Trend over several years (medium) Source: GDV *) Storm/Hail, since 1999 also natural hazards; extrapolated to portfolio and level Provisional 2015 value Natural hazards site and information campaign: expanding provision of information on risks across Germany Risk awareness arises from the provision of information on risks. With its web-based information tool on natural hazards, the so-called Kompass Naturgefahren, the German insurance industry shows how respective information can be provided. In some federal states, the public can get site-specific information on possible risks through floods, heavy rain, lightning and overvoltage as well as storm and hail. Now it is the turn of politics: as is the case in other countries, the government must aggregate the existing information on natural hazards and make them available to the public by means of a central online system. The promises made by the secretaries of the environment at federal and state level as well as by the state premiers must be turned into actions. It is time for a harmonised, nation-wide central database on natural hazards a central information site on natural hazards. The insurance industry renews its offer to contribute its expertise to the development of a nation-wide natural hazards site and connect it with a nation-wide information and awareness campaign on the impacts of natural hazards and extreme weather events as well as on the possibilities of prevention and financial protection against damages GDV Positions of German Insurers

28 PRIVATE HEALTH INSURANCE PHI: Strong private pillar in a dual system The high standard of German health care as compared to other countries is based, amongst others, on the competition between statutory health insurance (SHI) and private health insurance (PHI) systems. Together they enable policyholders to rely on a nation-wide network of hospitals, general practitioners, medical specialists and dentists. Waiting periods are short, participation in the medical progress is ensured for all patients. Proposals on the enhancement of customer conven ience are on the table, requiring the legislator s support. Providing a traditional coverage model, the private health insurance system is well prepared for the future: the individual health insurance contract provides a non-cancellable catalogue of medical benefits, which is continuously expanded in response to medical progress and whose scope cannot be restricted from outside. PHI ensures sustainable financing of the health care system by building up reserves. Above that the PHI enables physicians to apply whichever therapy they think to be appropriate, by paying an adequate remuneration. Thus, it continues to be a driver for innovation and growth in the health care sector. Its dynamic commitment to quality assurance, advice regarding long-term care and prevention is further testimony to the active role of PHI in shaping the health care system. The guidelines on facilitating a switch from one insurance rate to another within the same provider are a striking example of its capability to drive reforms and its customer-friendly approach. The guidelines came into effect in early 2016 and go far beyond the statutory provisions in some respects. Other proposals on improving customer convenience are on the table but require the legislator s support. Policyholder structure and breakdown of premium income 8.77 million policyholders with comprehensive health insurance, 25.1 million supplementary insurances, Euro 233 bn pension provisions Policyholder structure in private health insurance Civil servants 24.7 % Selfemployed 15.7 % Employees 11.6 % Retired civil servants 17.5 % Pensioners 7.5 % Unemployed 0.2 % Students 2.9 % Other non-working persons 19.9 % Source: Scientific Institute of Private Health Insurance (WIP) 2016 Breakdown of premium income by insurance types This includes a reform of the calculation bases to prevent erratic premium hikes. The standard rate should be strengthened to help policyholders facing difficult circumstances in life. Moreover, the framework conditions for occupational health insurance (bkv) should be improved. Occupational health insurance provides employees with supplementary benefits in the event of illness and employers with an important tool to retain employees. PHI makes progress in other areas, too: together with the German Medical Association (Bundesärztekammer) and Beihilfe, a supplementary finan cial support scheme for civil servants, the Private Health Insurance Association is drafting a new physician fee schedule (GOÄ) according to which higher fees for personal service by physicians in proportion to services performed by medical devices should be paid. The concept does not only comprise all current medical services, but also creates a mechanism for integrating future innovations. Such an amended physician fee schedule should take effect as soon as possible. Even though the continuing low interest rate policy of the European Central Bank, which is at the expense of all savers, also affects the holders of private insurance policies, private health insurance builds up more than Euro ten billion of additional reserves each year. It was able to more than double Comprehensive health insurance % Long-term care insurance 5.96 % Supplementary insurance % Special types of insurance 2.16 % its reserve volume for insured persons over the past 10 years to more than Euro 230 billion, thus demonstrating the stable and reliable functioning of the principle of capital funding. The impacts of an ageing society will become increasingly evident in the health care system. The more the demographic change is progressing, the more important will it be to cover even more people and services through private insurance to ensure the sustainability of the entire system. 26 GDV Positions of German Insurers 2017

29 Our positions Advancing duality of statutory and private health insurance gently Due to its variety and freedom of choice, the German health care system provides all persons with individual, effective health care. The impacts of supposedly fair universal systems can be observed in many European neighbouring countries: long waiting lists for medical treatments, no free choice of doctors, separate health care structures for the poor and the rich. Two-tier health care is a phenomenon of other countries rather than of the dual system in Germany. Germany is envied for its good health care system; and the reason why it is so stable and effective is because it is based on the two pillars of statutory and private health insurance. This well-functioning system needs to be advanced gently rather than being jeopardised carelessly by radical solutions. Covering more people and services through capital funding Making provisions that take account of demographic trends through capital funding brings more sustainability and intergenerational equity to social security schemes. It benefits all policyholders and strengthens the financial basis of the German health care system. The burden on pay-as-you-go financing in statutory health insurance must be reduced, and more services must be transferred into the capital-funded private health insurance to make the health care system future-proof. Dental services, sickness benefits and private accidents, in particular, can be transferred accordingly. Amending the physician fee schedule (GOÄ) The German Medical Association and the Private Health Insurance Association together with Beihilfe, the supplementary financial support for civil servants, have agreed upon a balanced comprehensive package of measures with regard to reforming the physician fee schedule. The draft provides clear advantages for all stakeholders: patients benefit from state-of-theart health care with transparent billing and protection against excessive financial burdens, and physicians benefit from an adequate remuneration with freedom to apply whichever therapy they believe to be appropriate. The concept offers a solid foundation on whose basis the legislator can soon adopt a new regulation. Enhancing customer convenience Additional reforms for the benefit of policyholders require the legislator s support. For instance, the effective insurance rate of private health insurance for low-income persons, the standard rate should be available to all policyholders again. Since life does not always go as planned, we must and want to provide solutions to people in every situation even in social distress. A reform of the premium development, which aims at preventing strong fluctuations in premiums, would also be in the interest of policyholders. According to the current provisions, there might be considerable increases in premiums, which are not in the interest of policyholders. Renouncing optional and supplementary rates in statutory health insurance Due to the fact that, in contrast to private health insurance, optional and supplementary rates of statutory health insurance funds cannot be calculated such that they take adequate account of the risks involved, these premium rates are structurally under-financed. Pursuant to the provisions of insurance law, private health insurance guarantees that the services/benefits established by contract will remain valid for the lifetime of the policyholder. Optional rates of statutory health insurance, in contrast, can be ceased at any time if they cannot be financed adequately. As a result, there have been cases where policyholders have paid into such a statutory health insurance fund, but never received any benefits because it was ceased prior to them getting ill. Moreover, such optional and supplementary rates impair competition in a functioning private insurance market since they are offered by health insurance funds privileged under social law. GDV Positions of German Insurers

30 INSURERS AS EMPLOYERS Accompanying digital transformation in social terms The future world of work will be different from today s. Will it also be better? This was the question raised by the Federal Ministry of Labour and Social Affairs (BMAS) in its White Paper Work 4.0. It seeks to accompany the industrial transformation towards a digital world of work in terms of social policy. The insurance industry may serve as a role model in this context. The transformation of the world of work through digitalisation is being addressed by politics. Driven by trade unions influence, numerous topics are being discussed, which, however, have only little or nothing at all to do with industrial change. A legal entitlement to working time according to the employee s preferences (so-called working time choice ) is being discussed. The proposal on an act on temporary part-time work is already on the table. For the purpose of allowing for improved reconciliation between family and work responsibilities, a legal entitlement to mobile working should be adopted. Employees should not only be given more time sovereignty, but also more location sovereignty. The issue of occupational health should be taken into account by adopting a right not to be reachable. Data protection is another interesting challenge in the social policy discussion. Employee data protection is hotly debated in this context, since employees should be protected against full digital documentation and evaluation of their work behaviour by the employer. In addition, protection of so-called solo self-employment As a result of changed customer behaviour, working processes and working time need to be even more flexible than in the past. is being discussed. A social framework addresses the issue of pension provision, so that self-employed persons will not be a burden to the general public when they are old. Even a new definition of the term employee is being considered. The most far-reaching proposal by the Federal Ministry of Labour and Social Affairs refers to the introduction of a so-called Personal Activity Account. According to the proposal, every employee in Germany should obtain a specific-purpose capital account right at the beginning of their career, which should be used for continuing vocational education and training, a career break for family reasons or possibly also for reorientation phases or sabbaticals. Financing is still unclear. However, every working person should obtain an initial credit. In addition, rights of co-determination should be strengthened to prevent massive job cuts as a result of the industrial change. The employee s work intensity should no longer be defined solely by the employer as contractual partner. Overall, far-reaching interventions into the contractual relation between employees and employers are being discussed. Our positions Social responsibility needs leeway It is important and adequate that companies assume social responsibility which is of a voluntary nature. Government or legal compulsion does not relieve companies from acting in a responsible way. An obligation is not being supported by the (good) will of the obligated party. Since the German model of social partnership has been very successful in the past and has also had a positive impact on the industrial change, there is no general need to change it. Digitalisation of the world of work should also be designed according to this proven model. Particularly since the related impacts on working processes are not new: since the early 70s of the last century, companies have used the possibilities of rationalisation arising from technical developments. They shape the transformation socially. Massive job cuts as forecasted by the academia and consultants already at that time have not taken place at the level predicted. New state funding mechanisms for workers in certain situations in life are therefore dispensable. 28 GDV Positions of German Insurers 2017

31 Consumer data protection and employee data protection need to be weighed No matter in which industrial area a company is doing business, it has to manage the challenges of adequate consumer data protection. Customer data must be managed reliably and safely. Company-internal control mechanisms ensure an appropriate processing of customer data. The necessity of applying control mechanisms also involves employees. Employee data protection can therefore not be an absolute right. It is essential that the rights and freedoms of consumers are effectively protected. As a result, employee data protection will inevitably have to take a backseat to consumer data protection sometimes, provided that the controls are necessary and are being performed such that the data protection rights of all persons concerned are weighed. Any considerations on legislative measures accompanying the industrial change should take this issue into account. More flexibility instead of sovereignty with regard to the organisation of working time Mobile and telework are already used extensively today As a result of changed customer behaviour, working processes need to be even more flexible than in the past. This also refers to the flexibility in terms of working time, in particular. Interests and concerns of the employees should be considered in this context. Companies try to accommodate their employees desire for greater flexibility. Working time models which seek to balance the different interests of the company and its employees must be developed at company level, involving the workers councils. This policy option needs room for manoeuvres. Unfortunately, the Mobile work Telework 85 % available 15 % not available 77 % available 7 % in planning 16 % not available Source: Special survey by the Employers Association of Insurance Companies in Germany (AGV) Sozialleistungen der Arbeitgeber in der Versicherungswirtschaft 2013 (only available in German) German Working Time Act (Arbeitszeitgesetz) does not take full account of these needs. The legislator should create more leeway for working time flexibility. Working time sovereignty is not an appropriate approach in this context. It provides wrong incentives for numerous jobs in which higher working time flexibility or even working time sovereignty is impossible. There is no apparent reason why the legislator should grant additional rights to an already privileged group of employees who work in an area with many possibilities to make their working time more flexible. Taking account of collective bargaining autonomy in the context of mobile working A legal entitlement to mobile working can only be stipulated at industry level. When it comes to industry regulations, however, it is the parties to a collective agreement and not the legislator who are in charge of stipulating respective provisions. A legal entitlement to mobile working by law can therefore not be considered. This would result in a two-tier society among employees. While there are certain jobs in which mobile working models are impossible (e.g. in long-term care), there are other industries in which mobile working is feasible and reasonable options serving the interests of both employees and employers are already being created at company level. The insurance industry is a pioneer as well as a role model for other industries in this context. The workers councils of the insurance industry agree that not every employee has the same possibility to work mobile in their job. The principle of mutually voluntary arrangements is the accepted outcome of the practical experiences gained here. GDV Positions of German Insurers