Revision of the German Insurance Contract Act (Versicherungsvertragsgesetz) – An Opportunity in the Competitive Environment?
Regulation Must Not Be Regarded Solely as a Troublesome Duty
At the moment, the public image of the revised version of the Insurance Contract Act which will enter into force next year has been influenced by the many objections which have been raised. But what positive aspects can be gleaned from the many and diverse modifications? In any case, the responsible people will have no choice but to standardize their information and documentation processes. But an efficient design of these processes also paves the way to customer value analyses and new business models.
As if chiseled in stone, the old German Insurance Contract Act (VVG), which regulates the rights and obligations of insurers and policyholders, survived two world wars and an entire century without undergoing any change. But now it appears that the first revision of the Act will really enter into force on 1/1/2008 after a period of exactly one hundred years. The new law promotes improved transparency and expands obligations on the part of the insurers to provide information, thereby strengthening consumers’ rights. The bill of October 2006 contains an extensive revision and also applies to all existing policies. The far-reaching modifications include expanded obligations with respect to counseling, information, and documentation. In addition, the policy model will be eliminated so that, effective immediately, a complete offer will be necessary which describes all of the general terms and conditions to the customer before the conclusion of a policy.
The first official draft gave rise to legitimate objections from the German Insurance Association (GDV). The Association questioned whether the regulations were necessary and within reason. Too much time and effort were required for its implementation. The Association also criticized the additional permanent administrative work because new documentation had to be prepared and archived every day and for every mediation. There is not a doubt that most of the regulatory obligations directly affect core processes of the insurers, namely, their relationship to the customer, causing substantial agitation on the market.
Opportunity for Transformation
Although the time and effort required for red tape and implementation increase, the Act also offers benefits for the insurance industry. For one, the requirements will drive non-reputable and leisure-time brokers out of the market because they will be unable to meet the implementation requirements due to financial and structural reasons. Simultaneously, the modification of strategic core processes such as customer contact offer new opportunities for better positioning and awareness. The decisive points will be, on the one hand, who can organize the increased requirements for providing information to the customers and the recalculation of the products as efficiently as possible, and, on the other, who can best describe to customers the advantages from the stipulated VVG requirements. The Volksfürsorge has already blazed a trail and has committed itself to transparent counseling services in its new advertising campaign KKB (Clear and Better Counseling).
