Intended to enhance consumer protection by simplifying the termination of non-life insurance policies, the recent revision of Belgium’s Insurance Law promises to bring a wave of change to the industry. 

Published in the Official Gazette last autumn and with the deadline for full compliance set for October 1, 2024, the primary objective of this revised legislation is to streamline the procedures for consumers to acquire or terminate insurance coverage.¹ In essence, the new law empowers consumers to:

• terminate insurance policies not only via registered mail but also electronically
  
• terminate insurance policies with a notice period of two months, a reduction from the previous three-month requirement (also applicable in a B2B environment)
  
• terminate insurance policies at any point during the coverage year, not just on the policy’s anniversary date, with a two-month notice period
  
• instruct a new insurance provider or intermediary to terminate an existing policy with a competitor prior to the commencement of the new policy.

However, these newly granted rights come with certain conditions:

• the new rules are applicable only to products falling under non-life insurance and distributed to natural persons (except for the shortening of the notice period, which also applies to legal persons)
  
• consumers can request the termination of an insurance policy at any time only if it is tacitly renewable and has been active for more than 12 months
  
• while insurers are required to accept policy cancellations electronically, they are not mandated to provide an extranet portal facilitating such cancellations.
  
  

Impacts on insurers

Despite these constraints and the fact that the government may restrict the scope of the new law further before it enters into force in October 2024, the changes outlined in the law could have important financial, operational, and commercial implications for insurers.

Financial impact. The financial repercussions of the relaxed termination rules on insurers hinge on the number of policies that are ultimately cancelled. Furthermore, the prospect of terminating insurance policies outside traditional ‘renewal periods’ and the expectation for insurers to terminate new customers’ existing policies before binding cover is expected to increase the administrative load on insurers, thereby impacting operational expenses and with them the price-competitiveness of products and/or profit margins of insurers. In addition, significant market shifts could affect insurers’ liquidity and/or capital requirements under Solvency II.

Operational impact. Compliance with the new law most likely necessitates insurers to overhaul existing procedures and processes related to the issuance and termination of insurance policies. While insurers might be able to comply with the new law through manual workarounds and workflow changes, they might want to enhance their digital solutions for managing policy issuance and termination. This could mitigate the impact of the revised law on operational expenses through productivity gains while simultaneously improving the customer journey and user experience from policy inception to termination.

Commercial impact. Many insurers will need to amend the terms & conditions of existing products to align with the revised law. These amendments could be purely technical and legal, or they could be leveraged to enhance the value proposition and/or implement price increases to offset the aforementioned financial impact. Additionally, the new termination rules could foster a dynamic competitive landscape that insurers can capitalize on to attract new customers, for example through targeted marketing campaigns.

A win for consumers and an opportunity for insurers – with caveats

In conclusion, the new law of October 2023 is a win for consumers who will soon benefit from streamlined and simplified enrolment and termination processes for non-life insurances. Our 2023 Belgium Insurance Survey found that flexibility and personalization rank highly on the Belgian consumer’s agenda when considering insurance coverages, and more than 70% of consumers prefer purchasing insurance products online.² It is only natural, therefore, that consumers also prefer terminating insurance coverages with fewer constraints and through digital means.

Nonetheless, the recent regulatory changes pose a myriad of challenges and opportunities for Belgian insurers. At a minimum, all insurers must review their products’ terms & conditions alongside systems and processes to understand the extent of change and the cost of compliance. Some insurers will also find it beneficial to explore the dynamism introduced by the new law to enhance customer experience and improve market share.

Capco can support you on this journey. Leveraging our deep insurance, regulatory, and digital expertise, we can assist insurers in:

• Understanding the scope of changes required
  
• Developing digitally centered tools and processes that enable compliance while improving customer experience and keeping operational expenses under control
  
• Exploring commercial avenues to leverage the new regulatory environment to fuel growth.
  

Contact us to find out more. 

References

¹ Loi du 09/10/2023 simplifiant les règles de résiliation des contrats d'assurance (openjustice.be)
² https://www.capco.com/intelligence/capco-intelligence/belgium-insurance-survey-2023