After an epic battle, the reform of borrower insurance, mandatory when taking out a mortgage, was finally voted on last Thursday in Parliament. The law should come into force on June 1, 2022 for all new mortgage offers and on September 1 for all loan offers.
Initially, the main measure of the reform relates to the possibility of terminating, at any time, its borrower insurance to take out a new contract. Today, only annual termination, on the anniversary date of the contract, is possible. This option was in strong demand from mortgage and insurance brokers, but also from certain insurers and reinsurers, and consumer associations, who contested the quasi-monopoly of bank insurers on this very profitable segment of insurance.
In fact, banks have always taken advantage of their influence over the borrower when granting mortgages to “impose” their own insurance contract. As a result, they still represent 87% of outstanding premiums (in 2020) but, they defend themselves, the landscape is open to competition while 40% of new collections are now going to “alternative” insurers.
Finally, the sequence was not very favorable to the banks, accused of defending their backyard. The argument of a questioning of the pooling of risks by a splitting of the offer, and this, to the detriment of a majority of policyholders, was quickly swept away by the promises of competition, lower prices and purchasing power gain.
The big bang of the questionnaire
But the big bang of the reform did not come from where it was expected. By one of the secrets of the parliamentary debate, the senators of the opposition have brought out an old promise of the candidate Macron in 2017, that of the abolition of the health questionnaire.
The law now prohibits insurers from submitting a health questionnaire to policyholders and, if necessary, from having them undergo a medical examination. The measure is however limited to a mortgage of less than 200,000 euros (400,000 euros for a couple) and which expires before the 60th birthday of the borrower. This provision, which delights patient associations, took insurers and bank insurers by surprise.
According to the broker VousFinancer, 52% of the files granted in 2021 concerned loans of less than 200,000 euros. The average amount of loans even falls to 173,000 euros for first-time buyers whose average age is 33 years.
Nobody, in fact, expected this deletion from the questionnaire, even if the Crédit Mutuel Alliance Fédéral had already taken the initiative, in the name of its new status of “company with a mission”, to waive, under conditions, this questionnaire for its most loyal customers.
Among the insurers, it is the incomprehension in front of a text which prohibits them, according to them, to appreciate the risk. The French Banking Federation (FBF) is also surprised by this initiative by Parliament, which “completely reshuffles the cards “. “We will have to rebuild a system that makes it possible to cover the risk as widely as possible”told us, in an interview, Maya Atig, general manager of the FBF.
A priority: avoiding abuse
At the headquarters of the federation of France Assureurs – which brings together all insurers and bank-insurers -, which finally found itself at odds throughout the parliamentary debate in the face of the contradictory interests of its members, we take note “of this desire for solidarity with people who are sick or who have been sick”.
From now on, the battle should change ground for that of the fight against the possible abuses that could lead to the law and the need to put in place safeguards. But it will not be easy to communicate on subjects that are inherently painful and affect people. But how to prevent a person, knowing he is condemned, from taking out a mortgage for the benefit of his relatives?
Similarly, it will be necessary to check that there is indeed only one mortgage per insured and not several from different establishments. Another aspect is also causing concern among insurers, that of the delay in implementing the law, given the need to review all the documentation and contract clauses.
There remains the central question of the real impact that this reform will have on the cost of borrower insurance. Opinions are, to say the least, divided. For France Assureurs, there is no doubt that the law “will have a very significant impact on prices for the majority of policyholders”.
One insurer even tells us that, for some policyholders, the cost could double or even more. In the absence of a questionnaire, insurers could indeed be tempted to increase overall premiums for certain categories of borrowers, particularly the oldest, to deal with the risk that would no longer be truly identified.
According to a professional, the Prudential Control and Resolution Authority (ACPR) should even intervene on the issue on behalf of the solvency of insurers faced with an unknown risk: “Competition could thus move many policyholders towards a competitive offer without the insurer having a detailed knowledge of the risk and the means to protect itself. He could then find himself with a clientele of insured persons who have a higher risk of illness than the average of the population”, she points out.
However, the government estimates that the savings generated by the reform could vary between 3,500 and 4,500 euros over the duration of the loan. For APCADE, an association which brings together mutual insurers, brokers and general agents, “consumers could earn between 5,000 and 15,000 euros on the whole loan”.
Attrition rate and 35% rule
According to Pascale Sciacalugua, deputy director of the Crédit Coopératif network: “The cost of borrower insurance will be shared for all customers. To see if, during the effective implementation of its measures, the increase in the price of the individual contribution will be or not painless for the borrower. Indeed, the “risk” as insurers apprehend it, remains the same but it will now be shared”.
However, the danger is that a significant increase in the price of insurance for certain policyholders risks de facto excluding them from the mortgage market. The cost of the insurance is in fact integrated into the calculation of the overall rate which must not exceed the wear rate, currently 2.56% to 2.67%, depending on the duration of the loan.
It is also taken into account, notes Sandrine Allonier, director of studies at VousFinancer, in the calculation of the debt ratio: “It is a challenge for the borrower because the insurance can represent up to 2 points of indebtedness and tip a file beyond 35% of indebtedness (limit imposed by the regulations, editor’s note)”.
The winners of the reform
On the insurance side, the winners could be the mutual insurers, who intend to catch up on this market. This is also the case for major mortgage brokers, who see borrower insurance as an axis of diversification. Finally, neo-insurers intend to take advantage of this to continue their offensive.
Assurtech Luko, for example, which has made a name for itself in the home insurance market, has made borrower insurance on the French market a priority in 2022. But, in the absence of a health questionnaire, these new insurers will have to be careful not to see their “claims to premiums” ratio explode. It is therefore not certain that the battle will be fought over prices, but rather over the fluidity of the customer journey.
Finally, the bank insurers will not be so badly placed in the competition that is coming. Indeed, given their large stock of contracts, they will be able to pool more than new entrants and play on competitive rates.
One certainty: the big winner of the reform will be the young borrower, manager, urban, rather first-time buyer, or else the older and relatively well-off borrower, who will have a sufficiently large personal contribution to settle for a loan of less than 200,000 euros. Finally, people with fragile health should take advantage of the end of medical selection. But the banks will no doubt have the means to circumvent the absence of a questionnaire by analyzing bank data.
It will be up to the Financial Sector Advisory Committee (CCSF) to measure the impact of this law no later than two years after its implementation, i.e. at the start of the 2024 academic year.