Study of payment protection insurance offered in conjunction with consumer loans

Press release

The Financial Services and Markets Authority (FSMA) has concluded the first part of its study of payment protection insurance offered in conjunction with consumer loans. The first observations indicate that such products are expensive considering the cover offered.

A payment protection insurance contract subscribed for a consumer loan covers the balance owing on a loan in the event of the borrower's death. Consumer loans are taken out for the purchase of a car, for example, or a household appliance, an electronic device, etc. These loans are for lower amounts and shorter periods than, say, a mortgage loan. Payment protection insurance is thus useful mainly for persons who have a high short-term risk of death.

An analysis of the number of claims made in the period between 2011 and 2015 shows that insurers paid out on a claim in only 0.24% of the contracts in force.

During that period, companies that were included in the study collected an average of 65 million euros in premiums per year. Only 12% of this amount was used to pay claims. In the case of one insurer, the percentage was only 1.15%; for the others, it was around 20%.

More than half the premiums, that is, 35 million euros or 53%, was used to pay charges and commissions. At one of the insurers, charges and commissions represented more than 70% of the premiums paid by the policyholders.

The remaining 35% of the premiums collected represented a profit for the insurance company, minus any limited premiums they in turn paid to reinsurers.

Initial findings of the study also indicate that the amount of the commissions is rarely set out clearly. High remuneration may also induce vendors of such insurance policies - who in many cases also act as vendors of consumer credit - not to make the client's interests their chief concern.

In the course of its study, the FSMA not only examined the clarity of the general terms and conditions and the transparency of the cost structure, but also verified the quality and transparency of the advertisements. This second aspect of the study has not yet been completed; its results will be communicated at a later date.

The FSMA decided not to await the complete results of the study before drawing the attention of consumers to the fact that these products are expensive considering the cover they offer. It advises persons who take out a consumer loan to consider whether they really need payment protection insurance.

Please consult as well for more information and advice about payment protection insurance for a consumer loan.