Life insurance: the Senate denounces excessive fees

Two members of the French Senate's Finance Committee have published a report on investor protection. In it, they criticize the excessively high fees charged on life insurance policies, and propose several avenues for improvement.

Life insurance: high fees impact returns

On Thursday October 7, LR senators Jean-François Husson and Albéric de Montgolfier submitted an information report on protecting savers: paying less and earning more. The report is considered necessary after the year 2020, a year in which the French have saved a great deal, while returns on savings products have fallen due to inflation and low bond rates.

The two senators criticize insurers and bancassurers for charging excessively high fees, which " cut too heavily into the returns " on life insurance contracts. This conclusion echoes that of the Ministry of the Economy and Finance concerning retirement savings plans, whose fees were recently deemed " excessive " by Bruno Le Maire.

According to the Senate report, distributors and intermediaries recoup no less than 17% of returns on a life insurance policy in 10 years, or almost 50% in 40 years. These high costs explain why France is " in the upper middle of the European rankings ".

Retrocessions, a practice denounced but still tolerated

The rapporteur, Jean-François Husson, and his co-rapporteur, Albéric de Montgolfier, question the practice of retrocessions, which is prohibited in some countries but still in force in France.

Retrocessions are commissions paid by investment fund managers to distributors, such as asset management advisors or insurance brokers.

In exchange, these asset management companies distribute shares in their funds to distributors, who may therefore be strongly tempted to recommend products with higher fees to their clients, putting the latter's interests aside in favor of their own.

However, none of the proposals put forward by the senators call into question the practice of retrocessions, on the grounds that the range of products offered to savers would then become increasingly scarce, as is the case in the Netherlands, where the practice of retrocessions has been banned.

On the other hand, the report recommends abolishing transaction fees, which are additional charges levied on top of transaction fees when investors switch their funds to another product.

" These turnover fees can encourage managers to rotate asset portfolios, without economic or financial justification," write the senators.

Other recommendations include stricter supervision of outperformance fees, which are charged when returns exceed expectations, and mandatory listing of index funds to inform investors of low-cost products, which have " much lower fees for equivalent long-term performance ".

The senators also propose the creation of an average life insurance fee comparator, which could be entrusted to the Autorité de contrôle prudentiel et de résolution (ACPR).