NEWS
Unit-linked life insurance
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A new decree strengthens the disclosure of fees on so-called “dynamic” life insurance contracts, that is, a part is invested in units of account. Do not hesitate to use it in case of very disappointing fund results. Because the information on costs is still incorrect in many cases.
The low return on life insurance partially invested in shares (or units of account) is not only linked to the poor results achieved by the economic values in your portfolio. For individuals, the administration fees charged by the various intermediaries can literally negate the performance of the units of account. The legislator has gradually become concerned about this situation since the covenant law of 2019 amended articles L. 522-1 and 522-5 of the insurance law to strengthen the information obligation on especially unit-linked life insurance regarding administration fees.
For four years, intermediaries must provide individuals with the following information for each unit of account:
- the results less fees and the results less fees in the last completed financial year expressed as a percentage;
- fees net of the assets representing the unit of account in the most recently completed fiscal year;
- recurring fees deducted from the contract;
- the final result of the investment, minus management fees and the aforementioned recurrent costs, expressed as a percentage;
- the share of the costs that gave rise to commission retrocessions in favor of the various professionals (custodian, depositaries, intermediaries).
A decree of 20 June 2024, published on 4 July, completes the obligations of professionals: the information must now specify for each unit of account annual average over 5 years the previously listed indications (fees deducted from the unit of account, recurring costs on the contract, gross and net performance of the units of account, final execution of the contract). The decree makes it clear“if there is not enough seniority, these indications will be given about the duration of the existence of the unit of account”. Insurance companies are still far from having implemented all this information correctly today! Something to keep in mind to get out of a very bad contract.
Cancellation action in case of loss
Information about performance and thus the level of administration costs that reduce it is one of the essential elements of the life insurance contract. That is, elements which subordinate the customer’s acceptance. Case law is consistent on this point. In the event of loss or very disappointing returns, subscribers have every interest to study their contract carefully and check that all the information required by law has been given to them. Otherwise, action may be taken to cancel the contract. Cancellation is actually a contract’s sanction in the event of non-compliance with one of the essential terms of the contract.
Another element favorable to consumers: the Rennes Court of Appeal ruled on January 8, 2021 that consumers have 5 years to file an action to cancel the life insurance contract. According to the court, breach of information and advice obligations does not arise from the insurance contract, but is subject to common law. It is thus not the two-year limitation period laid down in Article L. 114-1 of the Insurance Act that applies, but the five-year limitation period according to ordinary legislation. The court further held that the date from which the limitation period runs is not the day on which the contract was signed, but the day on which the aggrieved party became aware of the damage that had been inflicted on him.
Formula agents: avoid!
Among all products derived from the financial construction of banks and insurance companies, one of them has disadvantages: formula funds (or structured funds). Ultra-complex, they are most often formulated to the detriment of buyers and are also loaded with administrative fees. These are around 7%, which already equates to a high performance for an investment! We immediately understand why the promise to benefit “rises in the stock markets” so much praise by companies is an illusion. In reality, the possible increases are completely eaten up by costs.
In particular, UFC-Que Choisir launched a class action against Natixis, a subsidiary of the Banques Populaires/Caisses d’Epargne group. The management company had marketed formula funds to individuals with significant hidden margins, resulting in losses for subscribers. However, we have recently started to see these funds re-emerge, promising gullible individuals to make the most of the recovery in the stock market. Just one piece of advice: avoid these window dressing products.
