Keep selling insurance without an insurance license in 2023

Starting Jan. 1, 2023, you will need a corresponding insurance license to sell insurance like extended warranties and guarantees in Germany. In this post, we’ll tell you what contributed to this regulatory change and how you can prepare for it.

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Before we get into all that though, let’s start with the basics:

What is an extended warranty? An extended warranty, sometimes also called a service contract, is a policy that prolongs the warranty period for a defined amount of time after the statutory warranty expires.

And what is a guarantee? Is it just another word for a warranty? Not quite. Consumers often confuse the two terms, but they’re actually different. A guarantee is a voluntary and freely configurable service provided by a manufacturer (or in some cases a retailer) to the customer that goes beyond the statutory warranty obligation.

Generally speaking, warranties are the responsibility of retailers and guarantees are the responsibility of manufacturers. Retailers are required by law to provide a warranty, but manufacturers are free to decide whether to provide a guarantee for their products.

Both extended warranties and guarantees are typically sold as an opt-in, which means they are sold as an optional add-on for an additional payment. The best part? It’s a win-win for retailers and their customers. Customers get extra peace of mind out of the deal and retailers get extra revenue.

There’s just one catch: as of January 1st, 2023, you won’t be able to continue selling extended warranties or guarantees to your customers because of some legal developments here in Germany.

What do you have to be aware of as a retailer selling insurance?

For a long time, the tax handling of warranties and guarantees was unclear, but the Federal Ministry of Finance (BMF) published several letters in 2021 that detail how warranties should be taxed and these changes will come into effect on… you guessed it… January 1st, 2023.

In a ruling on November 14, 2018 (XI R 16/17), the Bundesfinanzhof (BFH) decided that a car dealer’s opt-in warranty extension was an entirely independent service, based on an insurance relationship as defined in the German Insurance Tax Act (VersStG), and thus exempt from VAT under §4 No. 10 letter a of the German Value Added Tax Act (UStG). What does a car dealership have to do with your retail business? According to the BMF a whole lot. Their decisions based on the BFH ruling will apply to all warranty providers, not just car sellers.

To summarize: according to German law, warranties and guarantees are exempt from VAT, and selling them is considered an independent service. But what does this mean for you and your retail business?

Well as of January 1st, 2023, the sale of warranty extensions and guarantees will be legally considered insurance sales, and insurance sales are eligible for insurance tax, but only companies with a corresponding insurance license can collect insurance tax. So if you don’t have an insurance license or a partner with one, you won’t be able to sell them anymore.

What can you do to keep offering insurance to your customers?

Option 1: Stop selling extended warranties or guarantees

One option would be to stop selling these types of insurance completely, but if you do that, you and your customers will miss out on the added value they provide.

Option 2: Price in warranty extensions or guarantees

Another option would be to absorb the price of the insurance (so the extended warranty or the guarantee) into your product prices (i.e., pricing-in). If you do that, you won’t be selling warranty extensions as an opt-in anymore so you won’t have to collect insurance tax on them. But this would also mean that you can’t list the separate price of the insurance anywhere and that you can’t sell the product at a lower price without the insurance. Upping your prices across the board like this may have a negative impact on your bottom line, as customers are already cutting back on purchases in the face of rising inflation.

Option 3: Partner with an external insurance provider

If you’re asking yourself if there’s another way — we have good news for you!

Another option would be to work with an external insurance provider. They’ll be able to handle the insurance tax and legal complications so you can keep offering your customers the same extended warranty and guarantee options, for the products it makes sense to offer it for.

The best partner for the job? Hakuna!

With Hakuna on board, nothing will change for your customers. You’ll be able to keep offering the same insurance for the products you want, and your product prices will stay the same. Plus it’s totally free for you, and you’ll even earn a commission on every insurance sold.

Hakuna is a specialized provider of product protection solutions and is licensed under §34d GewO. Our solutions are easy to use and integrate, and fully adjustable to your branding and CI. We let you can decide which products should be protected.

Take action now to continue selling insurance: schedule a non-binding consultation with Hakuna

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