The liberalization of the home loan insurance market has become a political issue over the years. Since 2010, several laws have been adopted to allow borrowers to significantly reduce the cost of this compulsory expenditure, but the obstacles operated by the banks remain. Adopted at the end of February 2022, the Lemoine law “for fairer, simpler and more transparent access to the borrower insurance market” provides the solution by authorizing the change of mortgage insurance at any time, with no minimum commitment period. Since June 1, 2022, new borrowers can replace the bank contract with a cheaper alternativea provision that applies to everyone from September 1, 2022.
A market worth 8 billion euros
Borrower insurance is a divisive subject, which opposes the supporters of total liberalisation, as can be observed in car, home and health insurance, with the supporters of a framework that plays into the hands of bank insurers.
The market is divided into two sectors, on the one hand the banks which hold 88% of some estimated 8 billion in annual contributions, on the other alternative insurers, up to four times cheaper than the first with equivalent guarantees. For banking establishments, it is out of the question to give up a crumb of this colossal annuity in a context marked by low-yield mortgages due to rock-bottom interest rates.
Since the entry into force of insurance delegation principlewhich allows any new borrower to take out insurance external to the lender, the banks have constantly blocked any attempt to open up to competition. They want to preserve a quasi-monopoly on which they earn average margins of 68%.
Too vague, the Lagarde law had to be reinforced by two successive regulations which made it possible to extend free choice of contract over the entire duration of a mortgage :
- the Hamon law of July 2014 which made it possible to terminate at any time during the first year of the loanat the latest 15 days before the anniversary date of the signature of the loan offer;
- the Bourquin amendment of January 2018 which authorized substitution at each maturitywithin 2 months before the anniversary date.
Despite this regulatory framework in favor of borrowers, the latter struggle to exercise their right to free choice of contract because of the difficulties raised by the banks. Respecting the expiry date was one of the obstacles to being able to cancel and access insurance up to three times cheaper than the bank contract. By removing any time constraint, the Lemoine law facilitates the change of insurance and allows everyone to significantly reduce the cost of your insurance and by extension of his mortgage.
For the record, insurance is integrated into the APR (Annual Effective Annual Rate), indicator of the real cost of a mortgage because it aggregates all the costs required to obtain financing.
Cancellation at any time of the loan insurance
After several discussions in parliamentary committees, the Lemoine bill was unanimously adopted on February 17, 2022 and immediately promulgated on February 28.
The text aims to better balance a dysfunctional market by authorizing termination of home loan insurance contracts at any time. The goal: to prevent borrowers from being permanently penalized by a more expensive banking contract than the individual contracts offered by the competition. The Hamon law and the Bourquin amendment become null and void, any request for a change of insurance is now based solely on the Lemoine device.
- the health quiz is removed for home loans of less than €200,000 maturing before the insured’s 60th birthday. This ceiling applies per insured portion, so in the event of a loan by a couple, it is €400,000.
All these provisions come into force on 1er June 2022.
Banks that fail to meet their obligations to borrowers are liable to a fine of €15,000.
The right of terminate a borrower insurance contract at any time comes into force in two stages:
- At 1er June 2022 for any new mortgage loan offer;
- At 1er September 2022 for current insurance contracts.
Changing contracts at any time is a real revolution for the borrower insurance market. This becomes the ONLY insurance that can be canceled at any time, unlike car/motorcycle, home and health insurance which can only be substituted after a full year of subscription.
If the borrower is not subject to any legal obligation to take out insurance to cover his mortgage, this expenditure remains constrained to guarantee the good end of the credit. Thanks to the Lemoine law, he can minimize this load and go back on his first intention by changing the insurance contract whenever he wishes.
There is no more fatality: the borrower is no longer bound by the lender’s insurance. If he considers find better and cheaper elsewhereno obstacle to the change of insurance now stands before him, only theequivalence of level of guarantees must be respected.
A law to facilitate access to loan insurance
The legislator modified and enriched the initial text:
- The lender has an obligation toinform the borrower, each year and on any durable medium, of its right to annual termination.
- Any denial of delegated insurance must be explicitly motivated : the text imposes the exhaustiveness of the reasons for refusal in order to allow the borrower to submit a new request for substitution in accordance with the lender’s requirements.
- The cost of insurance must also be expressed over 8 years and no longer only over the total duration: this measure aims to facilitate the choice of insurance when comparing offers according to the borrower’s real estate project (resale of the property under loan, for example), the cost of insurance is not calculated uniformly by the service providers.
- The lender has prohibition to modify the conditions of the credit in the event of a change of insurance.
- The lender has 10 working days from the acceptance of the request for substitution to draft the addendum to the contract, in order to avoid a double contribution after the new contract takes effect. The procedure takes place within 20 days, including the period of 10 working days from receipt of the change request.
- The deadline for benefiting from right to be forgottena device accessible to people cured of cancer, goes from 10 to 5 years after the end of the protocol and without relapse. This right to be forgotten after 5 years is extended to viral hepatitis C.