Life insurance: French authorities raise the tone on rates

Sent 5 Dec. 2022 at 17:45

The authorities sign the end of the recreation for life insurance’s high and not very transparent rates. After months of “dialogue” with insurers, “unfortunately we have to note that the report of a good deal is not yet there today,” François Villeroy de Galhau, governor of the Banque de France, declared on Monday.

“Subject to rapid progress in the profession, which we continue to hope for, we will therefore receive a recommendation from the ACPR if necessary in mid-2023,” he added during a day of conferences at the Prudential Supervisory and Resolution Authority ( ACPR) ). “I know that the subject is disturbing”, but “in the light of the results, it seems to me that it is no longer possible to hesitate”, supported Jean-Paul Faugère, vice-president of the ACPR.

1,800 billion euros

The stakes are high, knowing that 38% of the French have a life insurance contract. In this total market of 1,800 billion euros in assets, units of account (UA) are particularly in the crosshairs.

More expensive and often riskier than traditional euro funds (with guaranteed capital but penalized in recent years by the context of low interest rates), UCs have developed at breakneck speed. To the point that they represent 39% of gross inflows this year and 27% of outstandings, figures from France Assureurs show.

“Depending on the management mode (active or passive) and the asset class (stocks, bonds, etc.), UC fees “can vary between 0.20% and 3.50% per annum,” the consultant states. Cyrille Chartier-Kastler on his part Good value for money This billing is added to the traditional costs of multi-support contracts (between 0.60% and 1.10% per annum), to managed or mandated administration costs and to any access fees.

While “the accumulation of high fees can in some cases cut off any hope of return” for the saver, “such cases must give rise to arbitration or to a revision of the list of CUs offered to customers”, has warned Jean-Paul Faugère. In other words, the supervisor wants certain CPUs, which are too expensive, to no longer be marketed.

It will make a formal recommendation to insurers next year if they do not propose any significant improvement to their practice. France Assureurs is already working on the subject and will collaborate with the other two professional associations: Mutualité française and the Technical Center for Pension Institutions.

The ACPR wants each insurer to publish the prices for each contract and each unit, as well as average data for the whole market “according to categories to be defined”, such as “the level of risk or the nature of the unit”. .

Regulatory and political pressure

Finally, it calls for the “discretion” of actors with regard to competition law. One way of saying that the regulator cannot impose the prices, but will ensure that they are transparent and comparable, suggests an insurance company.

ACPR wants to go beyond the summary of costs, quite comprehensive, born out of an agreement by Place in February and mandatory on the websites of life insurance and pension savings plan (PER) distributors since this summer.

French authorities also want to set an example under pressure from EIOPA, the European insurance regulator, which has prioritized life insurance costs. And under political pressure, after the austerity bill that resulted in the Husson-Montgolfier senatorial report in March.

The subject is also highly topical due to the volatility of the financial markets. After several years of rising markets, many UCs will be in losses in 2022 due to the reversal related to the war in Ukraine, inflation and rising interest rates.

Backlash

The supervisor also prepares a draft recommendation on the prevention of conflicts of interest in the distribution of life insurance. In the firing line: retrocommissions, these commissions paid by the manufacturers of savings products to their distributors.

“If we want to give ourselves a chance to retain the ability to provide a commission mechanism in the business model of insurance distribution, while voices are being raised in Brussels to rule it out as in certain countries of the Union, it is in the best interest of to ensure a correct application of the current rules,” warns Jean-Paul Faugère.

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