The Financial Sector Advisory Committee (CCSF) has issued several recommendations relating to disability cover and the method of pricing borrower’s insurance premiums. Objective: to improve borrower information.
The Financial Sector Advisory Committee (CCSF), within the framework of a plenary committee of October 12, 2021, issued several recommendations aimed at improve information for borrowers subscribing to borrower insuranceto increase the comparability of offers.
These recommendations follow the assessment of the borrower insurance market carried out by the CCSF in 2020, at the request of the Minister of the Economy, Bruno Le Maire.
Better information on disability cover
The difficulties of compensation on the Disability cover constituting a important part of the grounds for complaints. Either the insured did not know the limits of coverage of the disability cover taken out, or this cover is insufficient.
Thereby, policyholders who are declared “invalidity 2” by Social Security are not covered by the invalidity guarantee of their borrower’s insurance contract. Even though they could have been previously covered under the incapacity guarantee of this same contract.
Multiple disability categories
Social Security defines three levels of disability:
1before category: invalid able to carry out a remunerated activity (but often part-time)
2th category: invalid unable to practice any profession
3th category: beyond category 2, obligation to have recourse to assistance for the ordinary acts of life.
The CCSF recommends that when the “disability” guarantee of the borrower’s insurance contract is different from the concept of disability used by Social Securityor by a body ruling on professional incapacity, the contract must clearly justify this. It should also be specified that recognition of a state of disability by one of these organizations is not binding on the insurer.
An example to illustrate how premiums are priced
There are two pricing formulas for borrower insurance:
- a first fixed, as a percentage of the initial capital borrowed. Its amount is constant over the entire duration of the loan;
- a prime variable, as a percentage of the outstanding capital. Its amount decreases as the repayment of the loan progresses.
The interest for one or the other of these pricing methods is linked in particular to the repayment period of the loan. In practice, the average shelf life of a loan would be eight years.
To assess the cost of borrower insurance, key elements on the price are already communicated: the effective annual rate of insurance (TAEA), the monthly amount of the premium, the total cost of the premiums to be paid over the duration of the loan .
The CCSF recommends distributors of borrower insurance (insurers, bankers, brokers) to inform the consumer the cumulative amounts of his premiums after eight years of insurancein order to illustrate the mechanism of operation of the contract “.
No agreement on the infra-annual termination of borrower insurance
At the request of the Minister for the Economy, the CCSF focused its work on the right to terminate borrower insurance contracts at any time. But representatives of the financial sector and consumers, members of the CCSF, have not reached an agreement allowing the establishment of an infra-annual termination of these contracts, beyond the first year. The current framework of annual termination, on the anniversary date, beyond the first twelve months, is therefore maintained to this day.