Loan Insurance, Senator wants to Strengthen Competition
The author of the amendment on the annual termination of insurance wants to include in the law new provisions facilitating the delegation of this contract.
Borrowers still shy to change insurance
Senator returned to his recent Senate bill. At a press conference organized by a loan insurance broker, the parliamentarian specializing in the issue shared his state of mind on the current situation.
Before coming back to this presentation, it is important to recall Senator’s action and, in particular, his amendments in favor of real estate borrowers. As part of a mortgage, the sums involved are important. For the lender, it is important that the capital is secured in case of impossibility for the borrower to repay his debt. For this, it is required but not required to take out loan insurance. With such a contract, the insurer may substitute the borrower for the death or disability of the borrower. This service is not free. As a result, the total amount of loan insurance can represent up to more than 30% of the total cost of real estate financing. In the credit insurance market, two players are present: banks and their group offers, and alternative insurers with contracts that may prove less expensive.
According to the law, borrowers are informed of the possibility of taking out insurance with a company different from their bank (this is the insurance delegation). But in practice, the customers remain loyal to the lending institution even if they deprive themselves of an interesting economy. Indeed, with the insurance delegation, it is possible to halve, under conditions, the cost of insurance and that by taking it as soon as possible.
Towards a sanction for banks too “reluctant”
The delegation can intervene before the signature of the mortgage or during the first 12 months following. With the amendment, it is possible to change loan insurance each year and this for all contracts in progress. With the entry into force on 1 January 2018 amendment, real estate borrowers thus have the possibility to recover the purchasing power.
But there are still few to seize this opportunity. “The market remains captive to the banking sector,” said the upper house parliamentarian. According to market statistics, banks would hold 80% of loan insurance contracts currently. Borrowers can recover “3 billion euros” in a market that weighs 9 billion euros in France. The parliamentarian reports “cumbersome or delaying tactics” in insurance delegation processing. Clearly, banks do not play the game.
That’s why in the month of April, a new law proposal was tabled. On the one hand, it aims to clearly indicate the date of signature of the loan offer as the anniversary date chosen for the annual termination. On the other hand, it strengthens competition by punishing a fine of 1500 euros for banks that do not comply with these provisions. In addition, they would be publicly named for their practices. All this, of course, remains proposals.