Are we facing an issue with affinity insurance in France?

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Our newsletter aims to offer valuable insights, news, and analysis tailored to private market investors, enabling them to comprehend trends within the Financial Institutions Group (FIG) and optimize their investment strategies accordingly.

The Juice - Key insights of the week

Insurance Industry

• After experiencing rapid growth, the broker Sfam - now known as Indexia - has been placed into judicial liquidation, and its director Sadri Fegaier is facing legal action.
• Indexia : After SFAM, liquidation threatens four other companies in the group.
• The wholesale brokers Assuréa and Wazari merge. As announced by L'Argus de l'assurance in December, the brokers Assuréa and Wazari of the Meilleurtaux group have become one entity since April 30, 2024.
• The advent of generative artificial intelligence (AI ) will impact all sectors of activity, and the potential of this technology remains partially unknown. The insurance industry is preparing for it, but still with caution.
• ECB Rate Cut: What Are the Consequences for Insurance? Christine Lagarde has confirmed a reduction of the key interest rates by 25 basis points. This will impact insurers' investment policies, the returns on life insurance, and borrower insurance. Here’s an overview of the questions raised by this easing of European monetary policy.

Wealth Management Industry

• Two-thirds of funds would be excluded by ESMA's ESG regulations. According to the Morningstar Sustainalytics study, two-thirds of funds are excluded by the new ESMA regulations, which govern the use of terms related to ESG.
• Neuflize OBC and BNP Paribas Cardif are negotiating a life insurance partnership in France. The two groups have entered into exclusive discussions to sign a ten-year distribution contract that will lead BNP Paribas Cardif to acquire Neuflize Vie.
• Retirement Plan: BNP Paribas Cardif Partners with a Fintech. The bancassurance company aims to offer a fully digital solution for transferring retirement contracts, through wealth management advisors (CGP) and its partner brokers.
• Treezor (part of SG Group): One million euros fine for non-compliance with anti-money-laundering and counter-terrorism financing regulations (AML-CTF).

Payments

• GO Cardless. The payments fintech sees a future in open banking-powered payments amid a strive to reach profitability next year

Private Equity and Corporate Funds

• Sifted has compiled a list of the ten #fintechs with the fastest-growing teams. To be eligible, startups need to have raised at least$30m and have teams larger than 50 employees.
• The rise of the far-right in France is raising concerns that future policy will be less startup-friendly.
• Balderton Capital Strengthens Presence in Paris"; "The London-based venture capital fund, Balderton Capital, is placing two collaborators in its new offices in Paris."
• There are 2 kinds of SAFEs : pre-money and post-money. The only thing worse than using the wrong one (pre-money SAFE) instead of the right one (post-money SAFE) is not knowing the difference

Digital Asset and AI

• SEC approves ETF on ETHER . The decision comes less than six months after the SEC approved #bitcoin ETFs. Ether #ETFs are expected to be smaller, at least initially, than their bitcoin counterparts. #Ethereum #ether
• #OpenAI announced the release of a new version of its ChatGPT system that natively integrates speech, transcription, and intelligence into a single model.

Video of the week

With the digital lending market expected to hit $20.5 billion by 2026, growing at a 13.8% CAGR, the adoption of generative AI, machine learning, and blockchain technologies is on the rise. Studies indicate that these FinTech innovations enable loan applications to be processed 20% faster than traditional methods, without sacrificing accuracy. Consequently, these technologies enhance the efficiency, transparency, and scalability of credit risk management processes.

Risk Management in EL

Q1 PE’s deals ?on the French Market

France's private equity (PE) activity has declined over the past three quarters, with Q1 2024 reaching a low of €10.6billion in deal value, a 17.1% decrease year-over-year from the already weak Q12023. This decline is attributed to slowing growth, a high public deficit, and tightening monetary policy. Additionally, deal activity from non-European investors dropped significantly, from 51.1% of France’s PE deal value in 2020to 24.7% by the end of Q1 2024, reflecting France's more protectionist stance

Figures of the week

France’s PE exit value has been declining for four consecutive quarters as the bid and ask prices on transactions have widened following elevated valuations in 2021. Q1 2024’s reduced exit activity was more pronounced in France than elsewhere in Europe, with exit value down 74.8% YoY compared with a 22.8% decline for Europe. The wider question becomes whether we have reached a bottom for exits. With monetary easing fast approaching and multiples bottoming, we expect exits to slowly pick up in the next few quarters.

Are we facing an issue with Affinity Insurance in France?

The dynamism of the affinity insurance market has attracted numerous stakeholders: brokers, insurers, contract managers, as well as distributors. This product is now under the spotlight as it has been accused by the ACPR (Prudential Control and Resolution Authority) of often being a scam in which the policyholder becomes the victim.

The market is estimated at 3.7 billion euros in France

Affinity insurance is a complementary insurance offer provided by a company to its customers, related to the purchased product or service but not the main object of the sale.

It is therefore an accessory and optional guarantee. Affinity insurances generally concern high-tech or household appliances. These insurances are offered when the buyer acquires a relatively expensive product or service.

On March 6th, the ACPR, the Prudential Control and Resolution Authority, held a press conference in which it severely criticized affinity insurance. It backed its criticisms with relatively telling figures, which perfectly demonstrate how deceptive the product can be.

The ACPR observes a rejection rate of coverage requests ranging from 40% to 80%. Furthermore, procedurally, the complaint procedures appear complex and lengthy, with many conditions and exclusions that can lead to the refusal of indemnification for unclear reasons.

The ACPR also highlights the maintenance of excessively high commissions among distributors, sometimes reaching 40% to 50%, and even climbing up to 75% in case of sales targets.

Moreover, the regulator indicates that the claims/premiums ratio remains particularly low, oscillating between 15% and 20%. The director of the ACPR even clarified that "out of 10 euros of premiums, only 2 are actually used to cover claims," the rest being the margin for distributors and insurers... Consequently, the cost of affinity insurance is excessive compared to the coverage offered.

Disputes related to mobile phone warranties surged by 80% in 2022, in France.

It is undeniable that the lack of transparency of these insurances is a major problem. The terms and exclusions are not always clearly explained at the time of purchase, which can leave consumers with coverage unsuitable for their needs or expectations, or even deprive them of information on subscribing to such complementarity. Affinity insurance can also cover risks already covered by other insurance policies that the consumer already possesses, such as home or automobile insurance, making the purchase redundant and unnecessary. These insurances are often offered in a context where the consumer, under pressure when purchasing an expensive product or service, is encouraged by sellers to subscribe to a coverage they would not have chosen under normal circumstances.

Moreover, these contracts lack personalization. They are based on standardized coverages that do not take into account the specific needs of each consumer, which can lead to underinsurance or overinsurance.

To illustrate the recent abuses in the sector, the case of Sfam is particularly revealing. This broker, specialized in affinity insurances for mobile phones and a subsidiary of the Indexia group, was placed in judicial liquidation on April 24th. This decision was made, behind closed doors, by the Commercial Court of Paris, following a procedure initiated by Urssaf Rh?ne-Alpes, claiming 11.76 million euros of unpaid debts from the broker. The court set the date of cessation of payments to June 2023. The reasons for this liquidation are to be found on the regulator's side. On April 27th, 2023, the ACPR temporarily banned Sfam from marketing insurance contracts. A blow for the broker, especially since its insurer partners, MMA (Covéa group) and the company Axeria IARD, had announced their withdrawal at the end of the year. Deprived of insurers since January 1st, 2024, the broker could no longer market insurance offers in its stores.

However, the insurance code imposes on sellers an obligation of advice and total transparency regarding the presence of this insurance during the sale. The Hamon law of 2014 strengthened consumer protection by imposing strict conditions for the application of affinity insurance, including the possibility of cancellation after one year, the possibility of canceling monthly-paid insurance without justification, and a 14-day right of withdrawal.

Despite these protections, abuses by sellers persist in this sector. Moreover, an opinion of the Consultative Committee on Financial Sector (CCSF) was unanimously adopted by its members to "strengthen consumer protection." Among the planned measures, particular attention is paid to the customer's consent and a significant strengthening of the seller's duty to advise. To date, these initiatives have not yet materialized.

The intensification of regulation thus seems inevitable, and any investment by private market investors should take this into account to avoid any disappointment.

#PrivateEquity #CorporateFunds #FIGInvestments #MartheartFS #FinancialServices #InvestmentStrategy #France

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