Equivalence of cover in loan protection insurance (France)
The rule that a bank cannot refuse the loan protection insurance chosen by the borrower from another insurer as long as it offers an equivalent level of cover, assessed against a list of criteria published by the market.
For a long time, borrowers almost always took out the group insurance offered by their bank, which was very profitable for it. The law of 1 July 2010, known as the Lagarde law, opened delegation of insurance: the borrower may choose an individual policy from another insurer, and the bank can refuse it only if the level of cover is not equivalent to its own. Subsequent laws extended the right to switch during the loan, up to the right to cancel at any time since 2022. Equivalence still had to be defined, and it was a source of abusive refusals. The French financial sector advisory committee set a list of criteria in 2015: each bank selects a limited number, eleven at most for general cover and four for job loss, and communicates them to the borrower at the simulation stage. Equivalence is assessed criterion by criterion on these points only, not on price or the clauses as a whole. The bank must reply within ten working days and give reasons for any refusal, and it cannot change the loan rate in return for accepting. For alternative insurers, it is the rule that opened the market. For banks, which were losing a large margin, it is competition they first slowed through restrictive readings of equivalence.
Hypothetical case: a bank requires, among its criteria, cover for inability to work in one's own occupation and a deductible of 90 days at most. The borrower presents a cheaper external policy that meets both criteria; the bank, which cannot judge on other points, must accept it.
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