Real estate credit: 5 questions about the new liberalization of the borrower insurance market

Rejected on several occasions by parliamentarians, the total competition of borrower insurance contracts will finally materialize. In accordance with the votes of the parliamentarians gathered this winter in the mixed parity committee, the newly subscribed contracts may be terminated at any time from June 1st. The measure will be extended to all contracts already taken out from September 1. This will make life easier for borrowers who have great difficulty changing contracts, as Capital had already explained. Other measures accompany this reform, and with them, so many questions. Explanations, point by point.

Why make contracts more competitive?

The observation is clear: banks carve out the lion’s share of the loan insurance market. They pocket 88% of the 7 billion annual contributions. And the product is heavily marginalized, at 68% on average, far from the figures observed in home insurance (34%) and auto (21%). Out of 100 euros of contribution therefore, only 32 are redistributed as a bonus for households.

Competing insurers – Axa, Generali, Allianz – pick up the crumbs, despite lower rates for most borrowers. The latter, like the professionals, complain of the obstacles suffered when requesting a change of contract. A situation alarming enough to lead the Prudential Control and Resolution Authority (ACPR), the banking and insurance policeman, to publicly denounce the illegal practices of certain banks, citing in particular the delay, or worse, the lack of response from credit institutions.

How could we change the contract until then?

Three liberalization laws have been adopted in 12 years, without breaking the straightjacket for borrowers. Since 2010, they can choose to use external insurance – different from that of the lending bank – as soon as their mortgage is signed. If they do not succeed, for lack of agreement with their bank, they have the possibility of changing contract at any time during the first year of the loan thanks to the device known as the Hamon law. Finally, if they have missed the mark again, they can reiterate their request on each anniversary of the contract, following a (very) precise schedule.

What is the medical questionnaire, which parliamentarians have partly removed?

To reinforce the inclusion of households suffering from a disease likely to make them pay heavy surcharges, deputies and senators have taken note of the abolition of the medical questionnaire. This formality, which may be required by the insurer to assess the risk represented by the client, disappears for mortgages of less than 200,000 euros coming to an end before the borrower turns 60. The measure is not insignificant since half of the housing loans granted in France meet these conditions. The most fragile borrowers will therefore pay less for their loan insurance from June 1. Industry experts fear the creation of a threshold effect.

On the other hand, will the prices increase?

This is the flip side. Insurers will have to cover their clients “blindly”, even if they will still have the possibility of knowing key data such as the age, profession and smoking status of the insured. If the sickest borrowers pay less, those in good health will have to assume alone the risk incurred by the insurers, and therefore see the prices of their contracts increase. “Insurers have no choice but to mutualize to the extreme to cover all borrower profiles,” explains Magnolia. According to the grids received by the loan insurance broker, the increase should be between 20% and 25% on average, penalizing the youngest households as much as possible.

“The abolition under certain conditions of the health questionnaire raises many questions with a possible inflationary impact as a result, warns the insurer Generali. At this stage, we are studying the impact the law would have on our approach and our portfolio”. Another heavyweight in the sector, Axa “is considering adjusting its pricing policy, the calibration of which remains to be finalized.”

What gains can be expected through competition?

According to data from broker Mangolia, being unfaithful to your bank can pay off big. About 15,000 euros can be saved on average over the total duration of the loan, or 50 euros per month if the credit is made over 25 years. Bercy is more cautious, and figures the gain at 4,000 euros over 25 years. However, these data were calculated before the rate increase planned by the insurers and may prove to be lower in the future.

According to Capital’s simulations, the cost of insurance can be divided by 6 with an alternative insurer. A couple in their fifties would save almost 21,000 euros on their entire loan over 20 years.

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