[INSURANCE LAW] Loan insurance: a look back at the Lemoine Act of February 28, 2022
1) The Loi Lemoine, a measure to liberalize the loan insurance market
Stemming from a parliamentary proposal, the Loi Lemoine was designed to promote “fairer, simpler and more transparent access to the loan insurance market”.This specific measure is not unprecedented, and is part of a vast movement to reform loan insurance, initiated in particular by the so-called Lagarde law of July 1, 2010, allowing free choice of loan insurance, but also by the Hamon law of March 17, 2014, which opened up the right to cancel at any time from the first year of the contract, and finally by the Sapin 2 law, which extended the right to cancel beyond the first year.While the Lemoine law is inevitably part of this movement, this reform is nevertheless more ambitious than previous ones and promotes the objective of further liberalizing the loan insurance market, today essentially monopolized by banking establishments.
2) The right to cancel and replace loan insurance cover
The law of February 28, 2022, known as the “Loi Lemoine”, is a key measure in the reform process, opening up the possibility of cancelling and changing loan insurance at any time, free of charge.
Until this law came into force, policyholders could only cancel and change their loan insurance on the anniversary date of the contract.
This option can now be exercised at any time by sending a letter of cancellation to the insurer, and by requesting a replacement from the lending bank.
If the bank agrees, it has 10 working days from receipt of the request to amend the loan contract by means of an amendment, indicating the new annual percentage rate of charge.
To ensure that this measure is effective, insurers are also required to inform their policyholders of this right of cancellation every year, and to display the cost of loan insurance over an eight-year period.
Although this measure came into force on June 1, 2022 for new bank loans, it was subsequently extended to all existing contracts on September 1, 2022.
3) Abolition of the medical questionnaire under certain conditions
In addition to the right of cancellation, the new article L.113-2-1 of the French Insurance Code abolishes the medical questionnaire for home loans of less than 200,000 euros maturing before the borrower’s 60th birthday.
This measure is likely to apply to almost half of all home loans, as the ceiling corresponds roughly to the average loan taken out by an insured person.
In this respect, it should be noted that the ceiling applies to each policyholder, so that the ceiling set for a loan taken out by a couple is set at 400,000 euros, and applies to the total amount outstanding on all loan contracts.
4) What impact has the Loi Lemoine had one year after it came into force?
As far as insurers and distributors are concerned, the initial impacts of the Loi Lemoine can be assessed mainly from an organizational and operational standpoint (acceleration of pricing movements, new underwriting paths, more industrialized organization of substitutions).
It should also be noted that the extension of the right to cancel and substitute policies has had a greater impact on older contracts. Whereas before the Lemoine law, around two-thirds of loans substituted were less than one year old, this flow has been considerably reduced in favor of older contracts (five years or more).
The abolition of the medical questionnaire has not altered the insurance balance, as the proportion of policies taken out for between €190,000 and €200,000 has not changed significantly since the Loi Lemoine came into force.
For the time being, therefore, the impact of the Loi Lemoine appears to be relatively limited on the loan insurance market.
Nevertheless, they will be closely monitored over the coming year, as the Comité Consultatif du Secteur Financier will be required to submit a report to Parliament within two years of the law’s promulgation, in order to measure the impact of the Loi Lemoine on both insurers and policyholders.