Government considers breaking effective bank monopoly on mortgage insurance

 In Insurance, Mortgage lending, News

A programme presented by the Portuguese government on Friday – ‘Construir Portugal’ (Build Portugal) — has set the cat among the pigeons by reopening the possibility of insurance brokers to compete in a market worth €900 million — in annual mortgage insurance charges — which up until now have been almost the sole domain of the banking sector.

Under the government’s new plan, the possibility has been paved to “set up one or more insurance contracts through a services provider” or broker that may not be those “preferred by the mortgage lender” (I.E, the banks) in order to foster healthy market competition.

In other words, to end the monopolistic privilege of the banks in awarding benefits to mortgage applicants if clients opt for insurance packages recommended by the banks themselves.

The measure, which will favour families rather than the banks by opening up more choice and competitive prices, could have a positive annual impact of €300 million per annum throughout the life of home loans.

According to online news source ECO, although it was legally possible to buy mortgage insurance independently from the banks, including life insurance, risk insurance and multi-risk home insurance packages, banks advised using their own insurers in exchange for a reduction in spreads.

However, under the new terms from the government, the banks will not be able to “demand mortgagees to meet any additional conditions in order to contract or retain their mortgages with the lender, or make existing conditions tougher through lending rates, bank charges, spreads or in any other way.”

The policy change of selling insurance through banks or any other distribution channel is unlikely to make a big difference to insurance companies since charges paid on sales to broker agents will equally be paid to the banks for the same service.

However, in the case of life and risk insurance — who pay out in cases of death or invalidity — revenues from premiums stood at €803 million in 2023, of which €587 million (73%) were sold via the banks.

In multi-risk house insurance, the sale of these policies via the banks is less, but nevertheless significant. Of the €711 million in premiums charged in 2023, €300 million (42%) were issued at the request of the banks who acted as brokers or agents.

Although not all of this amount was related to housing, all told it comes to close to €900 million per year in insurance that can now be fought over between the banks and independent brokers for mortgage-related policies.

And already many insurance brokers are encouraging mortgage holders, who contracted their insurance through banks, to jump ship by offering better conditions and assuring a rapid return on costs that such a change implies.

One large insurance broker, April Portugal – which specialises in mortgage insurance – made €6.85 million on charges with 84% of its insurance placed with Axeria Prevoyance, an insurer based in France.

The main insurers of this type of life insurance normally partner with banks, almost always exclusively. Fidelidade with Caixa Geral de Depósitos, Grupo Ageas with Millennium bcp, Aegon Santander with Santander, Allianz with BPI, Lusitania with Montepio, CA Vida with Crédito Agrícola, and Zurich with Abanca.

Out of all of the main insurers in Portugal (most of them multinationals) only Real Vida and MetLife has managed to do well commercially without teaming up in an exclusive partnership with a bank.

It now remains to be seen when his policy become concrete given that the government has not for now set a deadline for the new policy to come into force as a regulation.