Insurance delegation

Delegation of authority refers to an agreement under which an insurer delegates its authority to a company or partnership to enter into insurance contracts on behalf of the insurer.

How can an insurer delegate authority?

The term “delegated authority” is used in the general insurance industry to describe a variety of provisions. At the heart of these arrangements is external delegation by insurers, involving the outsourcing of functions to intermediaries and other third parties. This is often accompanied by the distribution of other related functions between the parties involved.

Assignment of duties can take many different forms. It can concern all stages of insurance from the product life cycle, from product development to underwriting, distribution and sales and claims and complaint handling.

Delegation is a characteristic of the way in which certain parts of the general insurance market operate.

Delegation: term frequently used by companies that outsource. It is defined as “the use of a person to provide personalized services to a business” (other than a member of the company's governing body or a person employed by the business) or “an arrangement of any form between a business and a service provider by which that service provider performs a process, service, or activity that would otherwise be carried out by the business itself.” This means, delegation of underwriting authority and other important functions such as claims and/or complaints, management is by definition outsourced and subject to the relevant requirements required.

What is a mandatary?

A mandatary refers to a company or a partnership authorized by an insurer to enter into an insurance contract or contracts to be taken out by the insurer. These contracts will be managed by the agent in accordance with the terms of a binding authority. The most common method is to delegate insurance under a binding authority contract. However, you will find other forms of delegation in this guide.

What is a binding authority?

A “binding authority” is an agreement between an insurer and a mandatary. The latter therefore details the conditions under which the insurer will delegate its power to the mandatary. The purpose of this agreement is to conclude an insurance contract to be taken out by the insurer. And used to give an agent the power to issue insurance documents on behalf of insurers.

Insurance documents include insurance certificates, temporary coverage notes, and other documents that serve as proof of insurance contracts.

It will also define the agent's other responsibilities, such as managing insurance funds, resolving complaints, or accepting claims.

Loan insurance: delegated contracts vs bank insurance

Delegation of loan insurance or with the bank?

Taking into account the Lagarde law of September 2010 on insurance delegation. The Hamon law of July 2014 facilitates the change of contract during the first year of the loan. This measure was reinforced in January 2018 by the entry into force of the Bourquin amendment and the law on the annual substitution of borrower insurance. However, banks still hold more than 85% of the market share in loan insurance with their “collective contracts” compared to 15% held by external insurers.

The virtual monopoly of banks in insurance

Real estate loans are always proving to be a commercial target for banks. Its profitability has always been achieved through the parallel sale of complementary products. Among them are still:

• savings plans;
• current accounts;
• credit cards;
• car and home insurance;
• borrower insurance.

It must be admitted that banks are doing everything they can to maintain their monopoly on loan insurance in the real estate sector. This is a coverage that no borrower can avoid if they want to get their mortgage in place.

In nearly ten years, legislation has allowed the liberalization of the insurance market to guarantee real estate loans. However, when drawing up a loan application, the lender always offers the borrower a group insurance contract. That is to say an offer with a single rate that has been negotiated beforehand, but that you will not be able to return to.

Insurance delegation: let the competition do the trick!

Since the Lagarde law, the bank cannot change its loan offer or change the credit rate if you take out delegated insurance. So you can choose the insurance company of your choice. As long as it offers a level of guarantees equivalent to that offered by your bank.

Advantage: guarantees adapted to your profile

• age;
• smoker or not;
• practice of a risky sport;
• business travel;
• place of residence;
• etc...

This type of contract allows you to make substantial savings. Long-term loans should be emphasized in this case.

The right to choose without penalty

You have the right to choose and change your loan insurance without penalty. Several laws govern your rights to delegated insurance. The 2014 Hamon law put in place the modification during the first year around the loan and the Bourquin amendment. Integrated into the law of January 21, 2017, it confirms the right to cancel annually everything concerning mortgage insurance contracts. From now on, everyone can delegate insurance. That is to say, insure your home loan in an institution other than the one that grants the loan. And subscribe to a contract that is more competitive and better adapted to your personal situation.

Unfortunately, laws and regulations don't prevent banks from putting oral pressure on customers who don't want to engage in long, complicated procedures (judged by the banks!). Let's hope that this situation can change.