Last week, the European Insurance Authority issued a warning to insurance companies and banks as part of joint sale of insurance and credit products. In the crosshairs, the bancassurance companies’ pricing policy, which generates very high commissions on the basis of conflicts of interest. For better value for money, look for alternatives!
Bancassurance companies’ high margins
The subject is not new, but little known to the general public. Bancassurance companies have control of borrower insurance and this dominant position encourages them to practice high, even obscene priceswhich allows them to reap large profits from this product supported by the distribution of real estate loans. What is new is the European regulator’s warning of a abusive monopolistic practice.
EIOPA, which is the European Insurance and Occupational Pensions Authority, recently sent a warning to insurance companies and banks about these “bad pricing policies aimed at maximize profit“. The European regulator condemns the large part of the gross premiums paid by consumers used to pay off banks, while the benefits paid correspond to 30% of the amount.mortgage insurance generates between 30% and 70% commission for banks.
Most mortgage lending banks have theirs insurance subsidiary, which allows them to place their own product or have commercial relationships with insurance companies. This situation leads to conflict of interest to the detriment of the consumer, the last link in a commission chain.
Borrower insurance or free choice overruled
The rules allow for free choice of borrower insurance agreement and prohibits tying of insurance and credit. This does not prevent the market from being almost 85% absorbed by bancassurance companies. Due to the above business practices, the principle of free choice is called into question, i.e. to prefer an external and competing insurance agreement over the one offered by the lending bank.
It is recalled that in France the legislative framework regarding borrower insurance has been extended for more than a decade. After the Lagarde Act of 2010, which set in stone home loan insurance delegationentered into force on Hamon law and Bourquin law borrower insurance on it contract change during the loanrespectively in 2014 and 2018. However, bancassurance companies’ market shares have not changed one iota and the legislature had to get the business back on track to shake this status quo. With the entry into operation of Lemoine law 2022we have a right to hope for one effective use of the right to free choicewithout hindrance from the banks.
Since September 1, any borrower can change mortgage insurance at any time and free of charge starting the day after signing the loan offer. No more waiting for another due date replace the contract with a cheaper formula with equivalent guarantees. The enthusiasm on the part of the borrowers is also there: at the broker Magnolia.fr, requests for change have increased by more than 200% since the beginning of September.
Bancassurance companies are therefore encouraged to shift gears and comply with the rules for borrower insurance products. EIOPA encourages them to do so comply with basic regulatory principles set out in the Insurance Distribution Directive (IDD), “including product supervision and governance requirements”. They are asked to take the necessary measures to solve problems with high wages and off prevent conflicts of interest.
A pious wish while the pledge is unprofitable in a context of low interest rates. Only insurance can compensate for the loss when lending rates, if not always at rock bottom, are far from the level they should reach if they were adjusted as a result of monetary situation (inflation at its peak, ECB interest rate hike in September 2022 and sharp rise in government bond yields). The banks are blocked by the usurious rates, which on the French side are the weakest in Europe. The result of this stalemate in wear rates will perhaps come from the banks themselves, which have launched the idea of accelerating the increase in wear in 2023 to take into account loan offers and unsigned credits.
EIOPA leaves it to the local supervisory authorities tocarry out control. In France, this power is vested in the Prudential Control and Resolution Authority (ACPR), the banking and insurance supervisory body integrated into the Banque de France. In recent years, the ACPR has only issued warnings or recommendations against unscrupulous banks, whereas it has power to impose sanctions. The future will tell us if the bancassurance companies will correct the shooting under this pressure… pretty soft.