Bankers give thumbs down to bill aimed at reducing costs of mortgage insurance

Thursday, March 24, 2011

Chilean banking association ABIF presented several objections to a bill - submitted by the government to congress earlier this year - that aims to boost competition in the financial sector, particularly for insurance policies linked to mortgage loans, a press release from congress reads.

The bill is the third under the umbrella of the current and fourth stage of a large capital market reform, known as MKB, which the government announced in May 2010 with the goal of developing the local capital market.

The bill is designed to create a public tender system for all insurance policies related to mortgage loans, mainly title and unemployment policies. Under the current system, lending institutions make mandatory the purchase of such coverage from their own insurance company or through their brokerages. The government believes the new system will lead to lower mortgage loan costs.

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On that topic, ABIF general manager Alejandro Alarcón said the tender system would negatively impact consumers, as it could "gravely impact the solvency of the financial system" if the only consideration was the lowest bid presented. The country's insurance association AACH took a similar position, the release said.

As a counterproposal, Alarcón said the public tender should take into account other elements, such as quality of service, which, together with the lowest bid, should be considered when the final decision is made. He added all financial institutions should be required to have an insurance brokerage unit.

ABIF also called for one of the bill's rules to be revoked, as it would force lenders to provide client information when required under the tender system. Alarcón said such a measure could breach a bank's "privileged client information."