Client alert – Bancassurance – New restrictions on bundled sales of mortgage loans and insurance products

On 26 October 2023, the Belgian parliament adopted a more stringent regulatory framework on the bundled sales of mortgage loans and insurance products. The legislator intends to lower the customer’s burden when choosing insurance products related to a consumer mortgage loan.

The new rules are laid down in the Act of 5 November 2023 on miscellaneous provisions regarding the economy, published in the Belgian National Gazette of 11 December 2023.

Existing rules

Granting a mortgage loan is often subject to the condition that the consumer borrower concludes an ancillary contract (aangehecht contract/contrat annexé) ie a specific type of insurance contract in relation to the mortgage loan agreement. For consumer protection purposes, only credit protection, fire insurance and surety insurance qualify as ancillary contracts. (Article VII.146 of the Belgian Code of Economic Law)

In principle, Belgian law does not allow the creditor or credit intermediary (generally referred to as the Credit Provider) to impose a specific insurance undertaking on the consumer borrower (the Designated Insurance Undertaking). Instead, the customer is free to choose the insurance undertaking.

But this prohibition does not mean the Credit Provider can’t offer advantageous rates in a bundled sales formula. The Credit Provider could offer the consumer borrower a reduced price for the bundled sales (eg more advantageous interest rates) if the consumer borrower takes out ancillary contract offered by a Designated Insurance Undertaking. If the consumer borrower chooses to contract with an insurance undertaking not designated by the Credit Provider, the Credit Provider is not required to offer the advantageous rates (art. VII 147 of the Belgian Code of Economic Law).

New rules

In 2022, EIOPA published various communications regarding its concerns that cross-selling practices could adversely affect the freedom of consumer borrowers to combine credit products with insurance products from any provider (See EIOPA’s news article of 4 October 2022 “EIOPA calls for better value for money in bancassurance in warning to banks and insurers”). In a similar publication, the FSMA shared its observations from a 2017 market review of credit protection insurances on the Belgian market. (See FSMA’s press release of 23 May 2015 “Study of payment protection insurance offered in conjunction with consumer loans”). In its annual reports, the Insurance Ombudsman regularly refers to incidents related to credit protection insurances.

In light of this increased attention by supervisory authorities and market observers, the Belgian legislator has adopted various measures to reduce barriers to the customer’s free choice of insurance undertaking.

Ancillary contracts

The amended regulatory framework maintains the principle that the consumer borrower can freely choose the insurance undertaking, provided that, with respect to ancillary contracts, it offers the financial guarantees required by the Credit Provider. However, the amended regulatory framework includes the explicit provision that  the Credit Provider can only offer more advantageous loan conditions if the bundled sales relate to credit protection, fire insurance and surety insurance.

Cross-selling and bundled sales

The new regulatory framework maintains the principle prohibition of cross-selling while permitting bundled sales, ie the Credit Provider can offer more advantageous loan conditions if the consumer borrower concludes an insurance contract with a Designated Insurance Provider, qualifying as credit protection or fire insurance or surety insurance.

But, after one-third of the contractual period of the mortgage loan has passed, the new regulatory framework allows the consumer borrower to switch to an insurance undertaking of their choice without affecting the advantageous mortgage loan rate.

Before one-third of the contractual period of the mortgage loan has passed, the consumer borrower can also switch to another insurance undertaking if the Designated Insurance Provider increases the premium (other than an indexation) or if the insurance policy is terminated after a claim.

Specification per condition

The mortgage loan agreement should be construed as such that each condition relates to a specific advantageous rate, ie if a particular condition ceases to be fulfilled, the consumer borrower still benefits from the advantageous rates related to other conditions.

Authors
Pierre Berger – Partner
Alexander Hamels – Lead Lawyer
Pieter Van Noten – Lawyer