As of March 1, 2017, subscribers of a mortgage will be able to renegotiate each year the insurance of their loan. Banks have a lot to lose.
After having tasted the renegotiation of their real estate loans, the French can now try to lower the rate of the insurance contract of their loan, throughout the duration of this loan. Parliament took advantage of a bill to ratify the Consumer Code to vote, on February 8, the principle of annual termination of borrower insurance contracts.
This new freedom offered to consumers, every year, on the anniversary date of their contract, the insurance of their bank in competition, will come into force this Wednesday, March 1 st for individuals who will subscribe a new credit. But the great wave of renegotiations is to be expected as of 1 January 2018, the date from which the outstanding borrowings may also be subject to termination.
According to the socialist senator, Martial Bourquin, 8 million borrowers will then be able to obtain a better rate for the insurance of their credit which can represent ” up to 30% to 40% of the total cost” of this one. For the parliamentarian, author of the amendment that opened this new possibility, obtain reasonable rates of insurance borrower could “facilitate the accession to real estate property, with an increased purchasing power of 500 to 700 euros per year”. Since credit rates have been slightly up since December 2016, the negotiation of the insurance rate is a new lever to reduce the weight of repayment terms.
It remains to be seen whether the banks will diligently implement this reform that will hit them hard. In fact, most of the networks subscribe to their customers, when they sign a real estate loan, “group contracts”, provided by their insurance subsidiary against the repayment to the bank of a commission that is often very substantial.
A confidential investigation by the Directorate-General for Competition, Consumer Affairs and Fraud Control (DGCCRF) published in early 2016 pointed to the case of an institution receiving 37.2% of commissions on group insurance premiums, compared with 13 , 5% on “defensive” insurance premiums, proposed in response to the proposal of a competing insurer. The margins realized by the banks could even go beyond. “On 100 euros of the insurance premium paid by the consumer, 50 on average are commissions and do not pay the risk,” said Bourquin.
Savings for customers
The borrower insurance, necessary to secure a mortgage, is charged in a very variable way according to the banks and their customers. The differences in rates are especially noticeable between the “group insurance” of a bank and the offer of an alternative insurer, for young and healthy customers, but not only. According to the broker Meilleurtaux.com, the total cost of the insurance of a couple aged 50, non-smoker, having borrowed 200 000 euros over fifteen years, will amount to 15 000 euros with a group insurance, against 12 000 euros otherwise. For riskier profiles, the group contract can be more interesting.
Banks have a manna. Total borrower insurance premiums paid by credit holders amounted to € 8.3 billion in 2014, 73% of which related to home loans. The competition on all their stocks of real estate loans, from the beginning of 2018, could, therefore, cost them a lot. “It is expected that individual insurers will approach customers whose mortgages will soon come to an end, and therefore the low risk for them, by breaking prices,” worries a banker.
For their part, credit institutions warn against the consequences of a frenzy of renegotiations. “This reform makes us enter a logic of demutualization, said last Thursday Nicolas Théry, president of the National Confederation of Credit Mutuel, the World. This is the premium given to the rich, young and healthy, to the detriment of people who have difficulty in insurance. ”
The gradual liberalization of the borrowing insurance market has hitherto met with resistance. The Hamon law of 2014, which allowed the consumer to change insurers within one year of signing his mortgage, did not upset the sector.
In the first review of this reform, the Consultative Committee of the Financial Sector (CCSF), the consultative body devoted to the relations between financial institutions and their customers, has noted lower borrower insurance rates (8% on average ) but also blocking points. Many banks are not complying with the 10-day review period for a competing insurer. The rise of alternative insurers is not at the rendezvous, especially because banks refuse external assurances that, in their eyes, do not provide an equivalent level of guarantee.
To ensure that banks comply with the spirit of the reform, the Prudential Supervisory and Resolution Authority (ACPR) will issue a recommendation in the first half of the year, in coordination with the CCSF, which is also considering the establishment of an appeal procedure in case of refusal by the bank of an alternative insurance. “And if the competition is not restored within three to four years, it will be necessary to impose the unbinding, so that the banks can no longer sell to a customer the mortgage and the insurance contract that goes with”, warns Martial Bourquin.