AHML will not require life and disability insurance for the borrower

Mortgage borrowers will no longer be required to obtain life insurance when receiving a loan issued in accordance with the standards of the Agency for Mortgage and Housing Lending (AHML). The agency came to this decision at the end of the consideration of the case initiated by the Federal Antimonopoly Service (FAS) against it and the insurance companies. Yesterday AHML announced changes to its standards for issuing loans.

The FAS opened the case against AHML and 50 insurance companies in August 2008 (see Kommersant of September 1, 2008). As a result of the consideration of the case, the FAS commission recognized that agreements between AHML and insurers contradict the requirements of the Law “On Protection of Competition”, since they restrict AHML from concluding agreements with other insurance agents. AHML's restriction on the insurer's maximum income was also found to be in violation of the law. The agency and the defendant insurers voluntarily agreed to correct the identified violations, and therefore the FAS commission decided to dismiss the case. AHML has made changes to the standards for procedures for issuing, refinancing and maintaining mortgage loans, said Anna Yartseva, director of the AHML Communications Department.

The main innovation will be the offer of two types of loans - with and without life and health insurance of the borrower, only with insurance of the collateral. “The borrower will be able to choose whether he needs life and disability insurance or not, but the rate on loans without it will be 0.7% higher,” explained Ms. Yartseva. According to her, borrowers who received a loan before July 1, 2009 will not be able to take advantage of the new program, since an essential condition for issuing a loan was the interest rate, which was determined taking into account life and disability insurance.

AHML is the largest player in the mortgage lending market; according to its standards, up to 60% of all mortgage loans issued in the country can be refinanced. Previously, comprehensive insurance of the collateral, life and disability of the borrower was one of the mandatory requirements of AHML. Regulatory authorities, in particular Rospotrebnadzor, have repeatedly presented claims to the Agency, citing the fact that compulsory life and disability insurance for the borrower in mortgage lending is an imposition of services on him. The Supreme Arbitration Court also supported the position of Rospotrebnadzor (see Kommersant of January 30, 2008).

The introduction by AHML of an alternative product that does not require life and health insurance for the borrower will significantly increase the risks of banks, market participants believe. “It is unlikely that with the advent of this innovation, the borrower will be able to save on the loan,” believes Igor Ivanov, deputy general director of the insurance company RESO-Garantiya, “it is important for the bank to ensure repayment of the loan, and the cancellation of life and disability insurance increases the bank’s risks, which the bank includes in interest.” . “Most likely, banks will issue such loans only on the condition that they can be immediately refinanced by AHML, or raise rates on them due to increased risks,” agrees Alexander Dolgopolov, deputy chairman of the board of Vozrozhdenie Bank.

As part of eliminating violations, AHML also created a public list of requirements for insurance agents, and specified requirements for the minimum experience of an insurer (three years). The requirement for a reliability rating was removed from the list of mandatory ones, and the restriction on the maximum amount of the total insurance rate was also canceled (previously no more than 1.5% of the insured amount). “The adoption of such changes expands the opportunities for healthy competition between companies wishing to work in the mortgage insurance market,” Arsen Shiroyan, director of the mortgage insurance department of ROSNO, assesses the AHML innovations. “The requirement for the insurer to have a reliability rating is very important,” clarifies Senior Vice President of the IBRD Andrey Shelkovy, “the insured property is collateral for the loan, and the presence of a rating allows us to better evaluate the insurer.”

Ksenia Kommersant-Dementieva

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