France: Insurance & Reinsurance

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This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in France.

It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.

This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit  http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance

  1. How is the writing of insurance contracts regulated in the jurisdiction?

    The writing of insurance contracts is a regulated activity. It is regulated through the legal framework governing insurance activities generally, which is mainly found in the French Insurance Code (FIC), the French Monetary and Financial Code (FMFC) and the French Mutual Code (FMC) for certain specific mutual insurance companies.

    This legal framework deals with (i) the licensing of regulated entities (types of licences, permitted classes of business, approved persons requirements), (ii) prudential and financial requirements (valuation of assets and liabilities, prudential technical provisions, own funds, solvency capital requirement, minimum capital requirement and investment rules), (iii) governance, internal control, accounting and reporting requirements, (iv) conduct of business and (v) rules applicable to insurance contracts generally and to certain types of insurance products.

  2. Are types of insurers regulated differently (i.e. life companies, reinsurers)?

    Insurers (whether life or non-life) and reinsurers are governed by a similar regulatory regime, in particular from a licensing and financial/ capital requirements perspective (e.g. solvency requirements under Solvency II as transposed in France apply to all types of insurers and reinsurers if they meet the Solvency II criteria).

    However the regime applicable to reinsurers is generally more relaxed as reinsurers deal with regulated entities (e.g. most of the conduct of business rules will not apply to reinsurers) and the regime applicable to life insurers is tailored to the different nature of life and non-life business and the duration of liabilities for long-term business in particular. In addition, sales of life policies and long-term investment products are subject to specific requirements to ensure better information and protection of customers.

  3. Are insurance brokers and other types of market intermediary subject to regulation?

    Insurance intermediaries are subject to regulation in France. There are several categories of insurance intermediaries, the main ones are (i) brokers, (ii) general agents and (iii) tied agents. Insurance mediation activities may be carried on as a main activity or on an ancillary basis to other professional activities.

    The authorisation regime applicable to insurance intermediaries is relatively light touch compared to that applicable to insurers. Indeed, insurance intermediaries are merely required to be registered on a list of insurance intermediaries held by the ORIAS (“Organisme pour le Registre des Intermédiaires en Assurance”) and for that purpose must demonstrate that they comply with professional capacity and fit and proper requirements, professional indemnity insurance and financial guarantee requirements.
    Contrary to insurers, intermediaries are not to date subject to prudential and financial/ capital requirements or governance, internal control, accounting and reporting requirements. They are nonetheless supervised by the French Supervisory Authority (“Autorité de Contrôle Prudentiel et de Résolution” – ACPR) as regards the conduct of their business.

    Other insurance related services (such as claims management and policy administration) that do not qualify as insurance mediation are not regulated and thus not subject to the abovementioned requirements.

  4. Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?

    French insurance and reinsurance companies must obtain a licence from the ACPR before undertaking insurance/ reinsurance business in France. The licence is delivered for specific classes of insurance activities. Unlike insurance companies, reinsurers may write both life and non-life reinsurance business.

    Licence applications are submitted to the ACPR and the ACPR has an overall period of six months to decide whether it will grant the licence, from the date of receipt of the complete application. In the context of Brexit, the ACPR has announced that streamlined procedures will be put in place for the licensing of insurance companies. In the case of activities that are already supervised by the relevant authority of the home jurisdiction, the licensing procedure will be simplified and accelerated, by using documents which are already available in English. Any entity making the necessary application will be allocated an English-speaking contact to liaise with concerning all applications.

    European Union (EU) and European Economic Area (EEA) insurers and reinsurers can undertake business in France through the European passporting process pursuant to the freedom of services and/ or freedom of establishment regimes set out in the EU regulations as implemented in France.

  5. Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?

    Insurance/reinsurance companies are required to make a prior notification to the ACPR and obtain approval of the ACPR for direct or indirect changes in their shareholding structure, provided that the following thresholds (expressed in shareholding or voting rights) are met: 10%, 20%, 33% and 50% (intra-group transactions are subject to a light touch procedure). This requirement applies both to acquisitions and disposals of shares in an insurance/reinsurance company.

    The ACPR considers the following criteria before approving the change in the shareholding:

    • the reputation of the proposed purchaser (and its group, when relevant);
    • the reputation and experience of any person who, following the proposed transaction, will be responsible for running the insurance/reinsurance business;
    • the financial strength of the proposed purchaser, in consideration of the business of the target company;
    • the ability of the company to meet and continue to meet prudential requirements, including whether the group of which it will be part possesses a structure allowing to exercise effective supervision, effective exchange of information between competent authorities and to determine the allocation of responsibilities between competent authorities;
    • the existence of reasonable grounds to suspect that a transaction or attempted money laundering is being or has been committed in connection with the proposed transaction or that the proposed acquisition could increase the risk.

    The ACPR may refuse the contemplated change in shareholding or issue a conditional approval, binding upon the sellers and/or purchasers.

    Note that additional requirements apply (i.e. verification with the European Commission that reciprocity conditions are met) if the new shareholder is a member of a non-EU group.

    There is no prior approval or notification process in respect of changes in the shareholding of an insurance intermediary.

  6. Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?

    The FIC prohibits the conclusion of a direct insurance contract in relation to a person, a property or liability located in France with an insurance company other than those authorised to conduct business in France. Hence, in order to be able to underwrite risks in France, a company must either be authorised by the ACPR or by its EEA home-country regulator. There are however certain exceptions to this principle for marine/air transportation insurance contracts and derogations may be requested from the ACPR in other cases.

  7. What penalty is available for those who operate without appropriate permission?

    The carrying on of insurance/reinsurance business in France without authorisation is a criminal offence punishable by a fine of up to EUR 75,000 multiplied by five (EUR 375.000) for legal entities and a 3-year prison sentence. In some cases, legal entities that engage in illegal insurance activities may also face a prohibition to conduct business either definitively or for a maximum period of five years.

    When an individual commits the above mentioned offense, the publication of the decision may be ordered as an additional penalty.

    An insurance policy issued by an entity which is not duly authorised as an insurer will be considered null and void, with the exception that such nullity cannot be raised as against the policyholder or insured acting in good faith.

    The ACPR may impose administrative sanctions which range from a warning or a reprimand to the prohibition of carrying on insurance/reinsurance business or the partial or complete withdrawal of licence. The sanctions may be made public in any publications, newspapers or media it may wish to use.

    Insurance/reinsurance intermediaries can be subject to a 2 year prison sentence and/or a fine of EUR 6,000 in case of breach of provisions relating to registration obligations, professional capacity and good repute, professional indemnity insurance and/or subscription of a financial guarantee.

    Insurance intermediaries introducing, proposing or assisting in the conclusion of insurance contracts with an insurance undertaking which is not authorised to carry on business in France can be subject to a EUR 3,000 fine for each contract concluded, capped at EUR 6,000.

  8. How rigorous is the supervisory and enforcement environment?

    The French regulatory body with jurisdiction over the insurance sector is the ACPR.

    The ACPR is responsible for ensuring the preservation of the stability of the financial system as well as the protection of the insureds, policyholders and customers. As a result, the ACPR is principally responsible for (i) issuing licences and authorisations of regulated entities (ii) conducting on-going supervision of the financial position and operating conditions of insurers/reinsurers, and (iii) ensuring that regulated entities comply with conduct of business and other rules such as those applicable to insurance contracts or the protection of customers and with the rules governing acquisitions and equity investments.

    In order to carry out its mission, the ACPR has a right to access all relevant information needed concerning the regulated entities under its supervision (through inspection of the regulated entities and their commercial partners) and may impose safeguarding measures and/or disciplinary sanctions, as described above.

    In the case of international insurance groups or financial conglomerates, the ACPR supervises the entities located in France and may request from such companies the communication of data and information relating to “affiliated companies” (to be understood as both subsidiaries of the French licensed companies and companies holding an interest of more than 20% in such companies).

    The ACPR determines (in its annual policy) the focuses it intends to make in terms of sectorial supervision (for example: on-line brokers, unclaimed life assurance contracts, compliance with AML-FT rules…) and launches “supervision campaigns” of the main actors in the identified areas. In average, the ACPR performs ca. 250 on-site inspections on a yearly basis, the average outcome of which are ca. 15 disciplinary proceedings and sanctions. The ACPR shows a growing trend in using disciplinary fines, which may amount (in principle) to EUR 100 million. The highest disciplinary fine pronounced by the ACPR amounted to EUR 50 million against an insurance undertaking (2014) and to EUR 200,000 against an insurance intermediary (2016).

  9. How is the solvency of insurers (and reinsurers where relevant) supervised?

    The ACPR is responsible for ensuring insurers and reinsurers comply with the solvency requirements (under Solvency I or II). Solvency II introduces a three pillar systems of prudential supervision:

    • Pillar 1 is a set of rules for calculating technical provisions and solvency capital requirements through the Minimum Capital Requirement and the Solvency Capital Requirement;
    • Pillar 2 is a process of supervisory review, which requires to carry out a self-assessment (Own Risk and Solvency Assessment – ORSA) of their capital needs based on a detailed review of the their risks and to put in place proper governance. The ORSA report is submitted to the ACPR for review;
    • Pillar 3 imposes an enhanced degree of public disclosure to public and regulator.

    The role of the ACPR has been strengthened under the Solvency II regime.

  10. What are the minimum capital requirements?

    The Minimum Capital Requirement (MCR) under Solvency II is a minimum level of security below which the amount of financial resources should not fall. The Minimum Capital Requirement has an absolute floor based on the risk-based Solvency Capital Requirement (SCR):

    • EUR 2,5 million for non-life insurance undertakings, including captive insurance undertakings;
    • EUR 3,7 million for life insurance undertakings, including captive insurance undertakings; and;
    • EUR 3,6 million for reinsurance undertakings, except in the case of captive reinsurance undertakings, in which case the Minimum Capital Requirement shall be no less than EUR 1,2 million.
  11. Is there a policyholder protection scheme?

    In case of insolvency of an insurance company, the ACPR may organise a transfer of the insolvent insurance company’s portfolio to other insurer(s), in order to preserve the policyholder’s/insured’s interests.

    The FIC provides for different compensation schemes which guarantee the commitments of an insurance company, if such insurance company were to become insolvent and in the event the above mentioned portfolio transfer has not been authorised.

    These schemes vary depending on the insured risks:

    • Compensation scheme for mandatory non-life insurances: the Mandatory Third Party Liability Insurance Guarantee Fund (“Fonds de garantie des assurances obligatoires de dommages”) is entrusted, in the event (i) the person liable (usually of a road accident) remains unknown or is not insured or (ii) his/her insurer is completely or partially insolvent, to compensate the victims for bodily injury or property damage suffered. In such case, the Fund is subrogated in the rights of the creditor of the compensation against the person liable or his/her insurer.

      Please note that this Fund also manages the Guarantee Fund for Victims of Terrorist and Other Criminal Acts (“Fonds de Garantie des Victimes des actes de Terrorisme et d'autres Infractions”).

    • Compensation scheme for life assurances: the Guarantee Fund for Insureds Against the Insolvency of Life Assurance Companies (“Fonds de garantie des assurés contre la défaillance des sociétés d’assurance de personnes”).
  12. How are groups supervised, if at all?

    The Solvency II regime provides for a supplementary supervision for groups, in addition to the solo supervision. Supervision at the level of the group applies, for example, to insurance undertaking in the European Union, which is participating undertaking in at least one insurance undertaking in the European Union, or third country insurance undertaking.

    In the event of group supervision, the participating insurance undertaking is required to calculate a group SCR at least annually. All related undertakings and all risks within the group must be included in the group solvency calculation.

    For carrying on the group solvency calculation, the participating undertaking shall apply to accounting consolidation-based method by default, unless otherwise advised by the group supervisor or upon request of the participating company.

    In terms of group risk management, the responsible undertaking shall establish an appropriate risk management system for the whole group and ensure the consistent implementation across the group which should ensure that the proper framework of responsibilities and functions driven from group level down to individuals is put in place.

  13. Do senior managers have to meet fit and proper requirements and/or be approved?

    The persons in charge of conducting an insurance/reinsurance company are controlled by the ACPR to determine their fitness and skills to manage an insurer or a reinsurer (i.e. similar to the “fit and proper” requirements). When an insurance/reinsurance company applies for a licence, it is required to give detailed information of the identity, background, professional qualification and experience and good repute (and clean criminal record) of the persons who will be in charge of conducting and managing the insurance/reinsurance company’s business.

    There are no explicit requirements in the FIC as regards the nationality of the directors and officers of an insurance/reinsurance undertaking.

    Any change in the insurance/reinsurance companies’ management must be approved by the ACPR.

    There are also rules relating to the fitness and skills (and clean criminal record) of the persons who manage insurance intermediaries and of certain employees of insurance intermediaries.

  14. Are there restrictions on outsourcing parts of the business?

    The Solvency II regime provides for specific rules in terms of outsourcing.

    The Solvency II regime provides for specific rules in terms of outsourcing, in particular for outsourcing of critical or important activities, including prior notification of the ACPR. Indeed, certain activities or functions are considered as important or critical, for example the key regulatory functions (risk-management, compliance, internal audit and actuarial functions) or any activity or function whose interruption is likely to have significant impact on the activity of the insurance company or on its ability to manage risk effectively.

    When the execution of an important or critical activity or function is outsourced to a third party, including within the group, the insurance undertaking remains responsible for discharging all or part of their obligations and must keep control of its execution, in accordance with the procedures set out in the written outsourcing policy that the undertaking must put in place (in relation to at least the key regulatory functions when outsourced).

    The outsourcing of an important or critical activity or function must not lead to any material impairment in the quality of the undertaking’s system of governance, any increase the operational risk, any impairment of the ability of the regulator to monitor compliance of the undertaking or undermining of continuous and satisfactory service to policyholders.

  15. How are sales of insurance supervised or controlled?

    Insurance sales are supervised by the ACPR, having a specific supervision department dedicated to “business practices” (“Contrôle des pratiques commerciales”).

    The role of this department is to control compliance by insurers and intermediairies with the regulations aiming to protect insurance consumers and policyholders, including the setting-up of adequate procedures and allocation of necessary resources in this respect.

    The ACPR has also set up a specific platform dedicated to consumer protection in the field of investment and insurance products (“pôle commun Assurance Banque Epargne”), to which consumers may turn to, with complaints and queries. Note that the ACPR does not issue judgement over the complaint or query but may sanction the insurance company if it considers that it does not comply with the applicable regulations or behaves in a way which is not fair towards the consumer.

    The ACPR also issues recommendations which are additions to or clarifications of the applicable regulations, dealing (among others) with (i) sales of insurance and (ii) marketing materials and use of social media.

    Recently, the ACPR has sanctioned insurance intermediaries (brokers) for various non-compliance matters in connection with the conduct of business rules, in particular as regards duty to advise consumers.

    We anticipate that, as a result of the new Insurance Distribution Directive, the ACPR’s supervision will be increased in the area of consumer protection.

  16. Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.

    Customer protections provisions impact the content of insurance policies (or interpretation thereof) and on pre-contractual information to be provided, particularly in the case of distance sales or life-assurance contracts.

    Generally, an insurance contract (whether life or non-life) must comply with the FIC’s requirements concerning its form and content. The FIC specifies mandatory information that must be included in all insurance contracts, such as the identification of the insured person(s) or property, nature of the insured risks/events, date and time on which the cover starts, duration of the policy, etc. From a consumer protection perspective, an insurance contract must be drafted in clear and non-ambiguous terms, with specific requirements applicable to exclusion clauses. The form and content requirements are more stringent for life assurance contracts.

    In addition, the contractual relationship between the insurance company and the insured must be balanced. As a result, contractual terms found to be unfair are not enforceable against consumers and ambiguous or unclear terms are interpreted in the consumer’s favour.

    The Committee of Unfair Terms (“Commission des clauses abusives”) responsible for detecting unfair provisions has issued two lists of provisions setting out (i) provisions automatically considered as unfair and (ii) the ones which are presumed unfair. This Committee also issues recommendations and guidelines concerning provisions in insurance contracts.

  17. Are the courts adept at handling complex commercial claims?

    The Paris and Nanterre civil courts or commercial courts (“Tribunaux de Grande Instance”, “Tribunaux de commerce”) as well as the French Supreme Court (“Cour de cassation”) have a recognized experience of dealing with complex commercial claims, among which insurance claims. The case law of such courts provides useful guidance for the purposes of disputes.

  18. Is alternative dispute resolution well established in the jurisdiction?

    Specific to the insurance sector, potential disputes or claims may be brought before the Ombudsmen of the French Federation of Insurance (“Fédération Française de l’Assurance” – FFA), called the Insurance Ombudsman (“Médiateur de l’Assurance”). In practice, the Insurance Ombudsman’s jurisdiction is not really promoted (otherwise than through contractual provisions included in the policy documentation), although this may be of assistance in the context of retail insurance claims.

    Industry-wide, the insurance actors promote as much as possible alternative dispute resolution in France in the context of complex claims. The use of both arbitration and mediation is well developed in such context.

    The French Reinsurance and Insurance Arbitration Centre ("Centre Français d’Arbitrage de Réassurance et d’Assurance”) and the Paris Mediation and Arbitration Centre ("Centre de Médiation et d’Arbitrage de Paris”) recently combined their expertise to offer, at a reasonable cost, quick and confidential mediation and arbitration solutions while avoiding the delays and uncertainties associated with court proceedings.

  19. What are the primary challenges to new market entrants?

    France is the second insurance market in the EU and is a mature insurance market that covers all product lines in life, general insurance and reinsurance businesses.

    The French insurance market offers opportunities to new comers such as insurance comparison websites and to companies promoting technology-based innovation applied to the insurance sector. In this specific respect, the ACPR has set-up a “FinTech” team (“Pôle FinTech”) in order to better understand the FinTech’s functioning and purposes and to adapt to them, when possible, the regulatory environment and constraints applicable to their businesses.

  20. To what extent is the market being challenged by digital innovation?

    The French insurance market has already started its digital transformation, which is deeply integrated in the market leaders’ respective strategies and investments in digital innovation represent around 1/3 of the strategic plans and of their budget on a 3-year/5-year basis.

    Digital innovation is applicable to the whole scope of the insurance sector, i.e. from prevention, underwriting, customer relationship to loss management.

    The French major market players are seeking to fund or otherwise set-up strategic alliances or partnerships with start-ups active in the digital sector.

  21. Over the next five years what type of business do you see taking a market lead?

    Given the maturity of the French insurance market, the retail market shows more consumer behavior trends (rather than a significant up-coming product trend). In the field of the traditional retail insurances (such as motor insurance, household, PPI), the market shows an increasing volatility, encouraged by the recent changes in legislation allowing a facilitated termination of an insurance contract by the consumer, and a higher pressure on costs, encouraged by insurance comparison websites.

    On the corporate side, the French M&A market shows a growing interest for the “W&I” insurance products and, more generally, the French corporate actors show also growing interest for “Cyber” insurance products, as in this segment, there is still in an “under-coverage” situation.