BONN, Germany -- German risk managers are reducing their tax burdens while getting a clearer picture of the true cost of the insurance coverage they purchase.

Many commercial insurance buyers are attempting to reduce their gross premiums, which are heavily taxed in Germany, by moving to compensate brokers with fees rather than commissions and unbundling the services that insurers and brokers now provide.

"Commissions are a murky business," said Alois Markmeier, risk manager of Gutersloh-based media giant Bertelsmann A.G. "The problem is the hidden costs. What we need is a way to bring every step, every service out in the open."

That complaint among risk managers is common. Premiums in Germany normally contain a 15% broker commission, but other insurer-provided services and expenses are not well documented. Critics contend these unspecified auxiliary services can inflate actual premiums for financing a risk by as much 50%.

"I want to know the cost of claims handling, I want to know the administration costs, and I want to know how my risks are assessed," said Stefan Sigulla, risk manager of Munich-based electronics heavyweight Siemens A.G. "Then I can judge if I need them or not," he said, referring to services provided by insurers and brokers.

To gain more clarity, more and more German companies are asking insurers to take commissions out of premiums by a process known as "net pricing." Buyers then pay their brokers as well as insurers fees for additional services they require .

"The trend is apparent," said Wilfred Pehler, an account manager with Aon Jauch & Huebener in Muehlheim. "Clients want to know the cost of services, and I personally think it's a good thing. Our role is documented. Clients get the added value and know what we do for them."

Supporters say commission-free premiums allow buyers to cut their costs -- especially tax burdens. By eliminating commissions, German insurance buyers reduce their taxable premiums.

The ploy is no small issue in Germany, where the general levy on premiums is 15%. Germany's "damn insurance tax," as one U.S. insurance executive put it, has so increased the cost of insurance that for many it's more expensive than it's worth.

"At some point it just doesn't pay to have insurance," agreed Mr. Sigulla of Siemens. "Because of the high additional costs, especially the insurance tax, we are forced to look at alternatives. Net quotes allow companies not only to reduce insurance tax, but also to reduce sales taxes on commission."

"Brokers are exempt from sales taxes," said Mr. Pehler. "By taking commissions out, companies have a means to cut costs."

Some are not convinced that "net pricing" is so beneficial to buyers, however.

Small brokers contend the savings potential is only 2% to 3% of premium, reflecting a 15% tax on the 15% of premiums that are brokerage commissions. While a broker such as Aon has the size and willingness to work on a fee basis, some smaller brokers -- particularly some companies' captive brokers -- fear a loss of standing.

"It creates a new relationship to the parent company," explained Guenter Schlicht, managing director of Bonn, Germany-based Deutscher Versicherung-Schutzverband, Germany's largest risk manager association. "The captive broker no longer receives commissions but must lay down what it does for the parent company. Some captive brokers have trouble doing that."

The insurance tax has so greatly burdened the commercial sector that Mr. Schlicht thinks companies will do anything to lower costs.

"I can't say often enough: It's an unreasonable burden."

For Mr. Schlicht, the writing is on the wall. "The move to reduce taxes and gain clarity goes hand in hand with changes in risk management attitudes. The cost factor is transforming the market."

The issue of commissions vs. fees opens old wounds. Independent brokers often criticize captive colleagues for commission skimming -- in effect, cashing in on insurance commissions without offering real services -- and see "net pricing" as a means of "separating the wheat from the chaff," said Mr. Pehler. "A good broker can prove he's a good broker."

Equally vulnerable are insurance companies, many of which, Mr. Pehler said, are nowhere near ready to calculate premiums on a net basis. "The software, the whole system, is based on gross premiums," he said. "It shakes up their statistics."

While supporting "any solution that helps our clients," Manfred Illner, a member of the Executive Board of Munich-based Allianz A.G. Holding, admits he's wary of net quotes for legal reasons, such as the government interpreting "net pricing" as tax evasion.

Also, in Germany, insurers must first pay the premium tax and then recoup it from the client. Because the tax evasion statute of limitations is four years for insurers, as opposed to two years for buyers, insurers theoretically could end up paying taxes for "net pricing" corporate clients that later are found to have improperly evaded them. "Legal considerations will finally determine if it's an acceptable instrument or not. As long as the issue is unclear with tax authorities, I counsel caution," Mr. Illner said.

Germany's Finance Ministry, however, says it is clear. "As long as buyers talk insurers into taking commission out of the premium and paying the broker directly, we have no objections," said Hans Koch, head of the division that oversees insurance in the Finance Ministry in Bonn. "We don't particularly like losing tax revenues, but it is legal."

If all commissions were removed from commercial insurance premiums, the government could stand to lose up to 450 million deutsche marks ($257.1 million) a year, brokers estimate.

"There's no question about separating commissions from premiums" potentially violating tax law, according to Mr. Koch.

That is good news for some buyers, but not good enough for others. The search for alternatives to Germany's heavily taxed insurance system has persuaded Lothar Riedle, captive broker director and risk manager of VEBA A.G., one of Germany's largest international corporations, to initiate one of the largest self-insurance plans in German history.

"The issue is not just taxes," said Mr. Riedle. "It is total frictional costs."

Mr. Riedle has an alternative risk financing plan that he said will allow his Dusseldorf-based company to maintain a 100 million deutsche mark ($57.5 million) to 150 million deutsche mark ($86.3 million) aggregate retention, depending on the risk, and shave 30% off its current insurance premium.

"It's only possible if our captive broker works for a service fee and not a commission," he said. "We will massively reduce the amount of our insurance."

This type of internally funded alternative risk financing solution is a radical departure for most German insurance buyers.

"If you look at a VEBA business report, you'll see we have an incredible cash flow, and it's no problem from a liquidity standpoint to pay for claims out of our own pocket," Mr. Riedle said.

With 122,110 employees and 74 billion deutsche marks ($47.9 billion) in 1996 revenues, VEBA A.G. is in a position to make changes few other corporations can, he acknowledged. "It means every claim, except the most catastrophic, is paid out of our own pocket. It's VEBA money, which gives new meaning to loss control and safety management."

Mr. Riedle plans to also self-insure types of risks that have been previously uninsurable, including exchange rate risks and hedging risks.

"We are in the process of examining two of our corporations, putting together a risk mapping study that includes financial risks," he said.

Cost factors play a key role in the decision to self-insure. "I know our claims will average 100 deutsche marks to 150 million deutsche marks next year, and it's a base load we can carry. If I insure them, I'm tacking on 40% auxiliary costs I don't need to pay."

Not only will VEBA save 15% from taxes on premiums and other taxes, including German property insurance tax, the company also will reduce administration costs and costs of broker services such as documentation and loss inspection that it can do itself, saving 30% overall.

As a logical consequence, Mr. Riedle's self-insurance plans do not include a captive.

"There will be a fund manager -- hopefully us (the captive broker) and an excess-of-loss insurance consortium. A captive replaces one evil with another. There is still a damn cost structure attached to it, i.e., fire protection tax, premium tax and the frictional costs from the administrator and the reinsurance company. We want an aggregate basket that cuts those costs."

Mr. Riedle admits the little things are his biggest worry.

"How do you apply a mechanism like this to 800 factories worldwide?" he asked rhetorically.

Mr. Riedle said he recognizes that his views are radical in the German market. "With this, you kill the captive broker as it exists today," he said. "In essence, we're becoming a loss adjusting company; that's all that's left."

For the first time in history, companies, not insurers, are designing the products, said Mr. Riedle. "All the insurer provides is the capacity, and it makes no difference if it comes from the insurer, the reinsurer or a bank."

Germany's ultra-soft market has no affect on his view.

"Nothing beats cheap insurance, I know. But the question is, what is cheap? Is a service I buy for 40% added cost still cheap? We also want to be prepared for the day when the market is not soft. Eventually reinsurers will strike back. All the market needs is one or two large claims. If we have one policy worldwide, imagine the cost we can save."