Terminating Insurance Contracts Made Easier
Tuesday 08 April 2014
A new law has made it easier to terminate French car or house insurance contracts, although the final result has all the hallmarks of strong rear-guard lobbying by the insurers.
The loi Hamon has introduced a range of new and reinforced rights for consumers. Many of these new rights have arisen as a result of EU directives, in response to which France has introduced compliance legislation, although with a French twist.
Amongst the measures is a right for consumers to terminate their car and house insurance policies at will after the expiry of one year of the contract.
The right of termination is without charge and with full reimbursement of any unexpired premium.
Previously car and house insurance policies were tacitly renewed each year, unless within the two months preceding the renewal date of the policy it was terminated by the insured person, save in particular cases.
In order to remind you of the renewal, since 2008 insurers had been obliged to give you due notice of the prospective expiry date of the contract.
If the notice advising you of your right of termination was received less than 15 days before the final date allowed for termination, or after the date within which you are entitled to terminate, you are granted a further period of 20 days to terminate the contract.
However, the law was complex and poorly understood and is probably one reason why the French change their insurers far less than elsewhere in Europe.
Under the loi Hamon, consumers will be able to terminate their insurance policy at any time after the first anniversary date of the contract,
However, in relation to car insurance policies they can only do so provided they can demonstrate to their existing insurer that they have taken out a replacement policy with another insurer. The responsibility for the termination formalities in such cases rests with the new insurer.
The insurers successfully lobbied for this condition as they argued that without it there would be an increase in the number of consumers who were uninsured.
The terms of the new contract need not be the same as the existing contract, although, as a minimum, it must provide for third party cover - une garantie responsabilité civile.
The notice of termination must also be in writing by recorded delivery, and the policy itself will come to an end 30 days after receipt of the letter of termination by the insurer.
The insurer then has a further 30 days to reimburse any premiums that are outstanding for the unexpired period of the contract. Beyond this time interest is payable.
The new law is to become operative from 1st January 2015.
Now, it is not always necessary for you need to produce a new policy, for where there is a change of risk or personal circumstances, or an increase in the insurance premium, there are separate procedures from loi Hamon that exist for you to terminate your insurance policy.
i. Change of Risk
If by virtue of a change in circumstances you decide to change the level of risk covered by the insurance policy, but the insurer refuses to reduce the premium, then you can terminate your policy.
If it did not happen, you would need to send a recorded delivery letter terminating the policy, which would take effect 30 days' later. The insurer is then obliged to refund any overpaid premiums.
ii. Change of Personal Circumstances
A change of personal circumstances, such as marriage, employment, retirement, or termination of a business also allow you to cancel your insurance policy.
This right exists only provided the change of circumstances has a material bearing on the level of risk in the policy.
You need to advise your insurer within 3 months of the change of circumstances taking place, and the contract will cease 1 month later.
Thus, if you move on 15th March, and this change of property would affect the level of risk, then the contract will end 16th April.
iii. Increase in the Insurance Premium
Insurance companies often use an indexation clause to change their premiums each year.
If the insurance premium should increase by an amount in excess of that permitted in the contract, then you can terminate the contract, normally on 30 days' notice.
You need to read the terms of your policy to be clear on the limits within which the premium may be increased each year without triggering the right to termination, as well as the notice period in the contract.
The clause does not operate where the premium has increased as a result of the loss of, or a reduction in, your no-claims discount, or a new tax, or a new insurance obligation imposed by the law.
iv. Sale of Property/End of Tenancy
If you sell your property, or you terminate the tenancy of a property, then the notice period is 10 days.
Thus, if you sold your house on 1st March, and you send a letter of termination to the insurer the same day, it takes effect 10 days later.
If you fail to terminate, then the contract automatically lapses within 6 months.
Of course, you can also transfer the policy to your new home if you so wish, although a new premium may be payable, depending on the risk to be covered.