LOAN INSURANCE: THE EARTHQUAKE OF ANNUAL TERMINATION

It is a real shock wave for the loan insurance market in France. The law of February 22, 2017, ratifying two ordinances on credit established the right of annual termination of borrower insurance. The provision is already effective since 1 st March for all new contracts signed and will be extended to all the contracts as of 1 st January. This revolution, long demanded by consumer associations, announces strong impacts in the lives of consumers, but also in the creditor insurance market.

Long-questioned creditor insurance market practices

The borrower insurance allows, during a mortgage or any other credit, to guarantee the reimbursement of the organization that issued the loan. In particular, it offers guarantees in the event of death, disability, or loss of employment. Although legally optional, it is often imposed by lending institutions, which condition the issuance of credit to the presentation of guarantees in the event of non-repayment.

In the same way, the consumer is in principle free to choose his borrower insurance, either by accepting the offer proposed by the lending institution, or by accessing the insurance delegation. However, his choice is often constrained; firstly by the lack of information and visibility of the offer on the market; but also by the influence of his advisor and the fear of losing his negotiating room on rates. This combination of factors most often leads him to choose the “in-house” product offered by the lending institution.

The Hamon law attacking the banking monopoly

By facilitating the termination of insurance contracts, the Hamon law wanted to give back its decision-making power to the consumer. In the area of ​​credit insurance, it was applied through the law of February 22, 2017, ratifying two ordinances on credit and the amendment of the insurance code.

Concretely, the application of this law is divided into three stages:

• Since the Hamon law of March 17, 2014, consumers can change credit insurance during the first 12 months following their subscription. This measure concerns all mortgage loan offers issued since July 26, 2014;
• On 1 st March 2017 was a turning point, since the right of termination becomes annual, enabling the consumer to terminate the contract every year. This measure applies to any new contract taken out from February 22, 2017;
• From 1 st January 2018 the annual termination right will be extended to all insurance contracts borrower.

Through this total opening of the market, it is, therefore, the monopoly of the banks that is targeted. By allowing consumers to renegotiate their credit insurance every year, they are inviting new players to offer more segmented and competitive offers.

An expected reorganization of the creditor insurance market

This part of the Hamon law, therefore, announces a reduction in the cards on the loan insurance market.

By allowing consumers to terminate their contract on each anniversary date, the law invites consumers to consume credit insurance differently. Formerly the preserve of banks providing mortgage loans, it allows consumers to continually renegotiate the interest rates applied to the institution that covers them and even to terminate their contract to subscribe to another institution, provided that this presents an equivalent level of guarantee.

A direct consequence of this new situation is the arrival of new players on the market. First of all, it is a boon for insurers, who see this legislation as an opportunity to win back customers by regaining market share, by offering attractive prices for a core business activity. Traditional insurers have also lost no time, since Allianz announced on March 3 the launch of a 100% digital creditor insurance offer.

But this opportunity also attracts so-called “alternative” players in the sector, fintech/insurance companies expecting to have their share of the pie. It is indeed an opportunity for these finance start-ups to demonstrate their capacity to innovate and to propose offers oriented "quality of service and customer experience". Zen 'up offers a good example in this respect: in addition to a 100% digital offer, management processes have also been digitized, for better performance and greater customer satisfaction.

Combined with increased competition, the capacities of these newcomers also promise greater segmentation of the offer. Indeed, faced with a more volatile and probably better-informed customer, the trend should be towards increased personalization of offers, in particular, to attract the “right” profiles.

The banks haven't said their last word

This promise of the total opening of the market presents a real risk for the banks which hitherto had the stranglehold on borrower insurance. And the amounts announced are not anecdotal: according to the McKinsey firm, “between 600 million and 1.4 billion euros in premiums could change hands”. The movement has already started since change requests increased by 27% in January.

Faced with the risk of a massive exodus of their customers, the banks have not yet said their last word. At a time when interest rates are historically low, creditor insurance is indeed a significant source of profit. Rather than being subjected to the market trend, it is, therefore, a safe bet that the banks are going on the offensive: “ Some have already launched individual offers alongside their group contracts […] We can also imagine that they are leaving themselves on the offensive and even manage to gain market share, ” says Sandra Sancier-Sultan, Associate Director at McKinsey.

Moreover, this promise of El Dorado for the consumer comes up against the risk of a rise in borrowing rates. Indeed, faced with the risk of market loss on a significant source of profit for the banks, some warn of the medium-term risk of seeing rates rise to compensate for the loss of profitability. Enough to leave doubt on the redistribution of the cards