Important events during 2005

In Motor Vehicle Insurance, the companies have had product development in some extent.

Insurance companies have developed their call centre-services in order to manage the biggest part of their customer service through it. However, the majority, approx. 50 %, of motor insurance policies are sold by car dealers or inspection stations and 30% by insurance companies.

On-line vehicle registration done by insurance companies was nearly 16 % of all motor vehicle registrations in 2005.

Temporary insurance cover for the transit licence of a motor vehicle is granted by the Finnish Motor Insurers’

Centre. About 94 100 insurance policies were issued and 55 claims reported in 2005.

II.1 Claims representatives

The Finnish Information Centre, Compensation Body as well as Claims Representatives have been acting as required by the 4th Motor Insurance Directive. There have been richly 150 incoming as well as outgoing inquiries between Information Centres. Claims representatives in Finland settled 414 claims, which amount is doubled compared to the previous year.

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II.2 Modernization of the Finnish Motor Liability Insurance Act

The Ministry of Health and Social Affairs has launched to revise the current Finnish Motor Liability Insurance Act. The whole structure of the law should to be modernised i.e. to take into consideration the other legislations and new operators in the business as well as the transposition of the Fifth Motor Insurance Directive.

II.3 Traffic Safety Work

Traffic safety work of the Finnish Motor Insurers’ Centre was carried out by the Traffic Safety Committee of Insurance Companies (VALT). Traffic accidents were investigated statutorily together with the authorities in the whole country. 20 investigation teams investigated all fatal traffic accidents and some other accidents according to the standardized investigation method improved in 2003. Themes for the on-going studies and reports included among other things special features of single vehicle accidents, tractor accidents, motorized two-wheeler accidents, cross-country vehicle accidents, heavy-vehicle accidents and safety of different car-models. International cooperation concentrated on the ongoing SARAC2-, Pendant -and SafetyNet -projects. VALT also took part in the European Transport Safety Council’s (ETSC) work.

II.4 Car thefts

In 2005, the number vehicle thefts reported to insurers was 20 893 (25 293 in 2004), whereof about 5 893 were stolen. The rest concerned motor vehicle burglaries or thefts done by breaking in to the vehicle.

III. Foreseeable future developments

Motor insurance premium rating and product development will strongly continue increasing competition between insurers.

On the other hand the claims ratio is still at the unsatisfactory level as it has been for several years. Despite annual premium increases in the range of 3 – 8 % there still remains a need for further premium increase.

Use of web-sites will be intensified and improved.

Cooperation between insurance industry and automobile market as well as the other interest groups will continue to an increasing extent.

The Vehicle Administration Centre carries on reorganizing their services including the registration system.

Reformation of the registration system will influence also on the on-line registration made in the insurance company’s office.

In cooperation with insurance companies and the Vehicle Administration Centre, the work will continue to create a functional and versatile electric communication system.

If you need any further information, please let us know.

CEA Statistics N°27 | 9 Country guide

France

Motor insurance turnover totalled €17.9bn. After outlining the latest claims and market trends in 2005, we will refer to the main developments in 2005 on the motor insurance market: the draft reform of the law of obligations, the discussions under way on compensation for bodily injuries, the urban unrest, the veto applied by CNIL on the use of a geopositioning system when taking out cover, the transposition of the mediation directive and the introduction of a requirement for the insurer to inform the insured in respect of his option to cancel a contract that has been automatically renewed (Châtel law).

I. Market

I.1 Number of vehicles on the road

The number of vehicles on the road in France still comprises 36.3 million 4-wheeled vehicles and 2.5 million motorcycles and mopeds as at 1 January 2006.

In terms of structure, the age of the vehicles on the road has remained stable compared with 2004 (8 years) with almost 33% of vehicles more than 10 years old (including 9.6%, more than 15 years old) compared with 22% in 1994. The importance of diesel vehicles in private and commercial cars continues to increase (47.7% in 2005 compared with 45.5% in 2004).

It should, however, be noted that after three quite modest years, new vehicle registrations picked up again in 2005 (+ 2.7% for private and commercial cars/vans and + 4.3% for commercial vehicles). This represents more than 2 million vehicles for private and commercial cars/vans. After a fall in 2003, the rate at which private and commercial cars/vans are coming onto the market (as % of total vehicles on the road) has increased again since 2004 and represented 6.2% of total vehicles on the road in 2005. Hence 90% of new registrations of vehicles corresponds to private and commercial cars/vans.

I.2 Premiums, cover and guarantees

There was continued growth in motor insurance premiums but at a lower rate than in previous years (2001 = 5%; 2002 = 5.9%; 2003 = 5%; 2004 = 2 %) since they only increased by around 3 %. The slowdown in the increase in premiums observed in 2005 in motor insurance comes from the private market as much as from the business market. It can be explained by the fall in claims, and follows on from the commitment made by insurers to reduce motor rates. Motor insurance premiums therefore increased to almost €17.9bn in 2005 with the following breakdown: €14.6bn for “individual/personal” premiums and €3.3bn for “business”

premiums.

Insurance companies are seeking to expand the level of take-up of optional cover. It remains at around 82%

for theft and has increased slightly to reach almost 59% for vehicle damage cover. In addition, almost half of drivers have taken out optional cover which indemnifies them under common law when they are the victims of an accident which they caused. The increase in the price of cover other than liability is the reason for the increase in value of motor insurance contracts with optional cover.

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I.3 Benefits

The amount of benefits paid out in 2005 (not including management costs) has increased by 2% compared with the previous year (€14.7bn in 2005 compared with 14.5 in 2004). A quarter of these sums relate to payments for bodily injuries and three-quarters are devoted to compensation for material damage.

Accident injuries

The reduction in accident injuries recorded by the police, which had already commenced in 2002, 2003 and 2004, continued in 2005 (- 3.1%, i.e. 82,736 accident injuries). The number of fatalities fell by 4.6% (5,318) but the number of injuries fell by only 3.4% (105,006). These figures can be accounted for by the repressive and preventive measures introduced by the public authorities since July 2002 (installation of automatic radars, increased penalties, etc) as well as the role played by the media in making the public more aware of risks on the road.

The frequency of bodily injuries indemnified under the liability cover has improved by 4.5%. It should be pointed out that the latter covers a much wider range of claims, in particular minor accident injuries for which the police are not automatically present at the scene of the accident and cannot therefore draw up a police report. Hence the number of victims of bodily injuries can be estimated at about 180,000 in 2005 from insurance company records.

The average cost has continued to increase at the same rate as in previous years, i.e. about 8%, which does not allow any reduction in the global cost.

Material damage

As in the case of bodily injuries, the measures taken by the authorities have had repercussions on material damage. A reduction in frequency of 6% had already been experienced in 2002, with a peak in 2003 of - 9%. Confirming the slowdown which began in 2004 (- 4%) the frequency of material damage claims fell again by 3% in 2005.

At the same time, we have continued to record a minimal increase in the average cost of 1%, despite a significant increase in the cost of paint ingredients (+ 7.0%), in hourly labour rates for bodywork (+ 6%) and spare parts (+ 3.4%).

Consideration of these elements added to the fact that the percentage of vehicles declared to be a total loss has fallen leads one to think that French drivers are driving more slowly.

This acceleration of the reduction in claims has had several repercussions.

Public Authorities: in view of the reduction in motor claims, the public authorities have strongly encouraged insurers to take account of this state of affairs in their motor premiums. Since the end of 2004, the market players have been engaged in a rate reduction policy.

Repairers: the reduction in the number of vehicles to be repaired has caused some problems for certain repair businesses. Stresses have arisen in relations with the bodyshops which have approached the authorities to ask them to readjust the relationships which they consider to be too favourable to insurers. The bodyshops that think that they are compelled to work at a loss, so that insurers can direct their customers to them, denounce this practice. Working groups have been set up within the Ministry of Economic and Financial Affairs, the initial conclusions of which indicate that repairers must above all face up to a structural problem.

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Theft

The frequency of thefts continued to improve significantly in 2005 with a further fall of 12% in 2005.

Although the number of vehicles stolen fell by 3.7 % in 2005 according to the Ministry of the Interior, on the other hand the proportion of the vehicles not recovered has deteriorated significantly and is at its highest level for ten years, at 36.2% of the vehicles stolen. The proportion of indemnification for total losses has therefore increased in proportion. This is the main reason for the significant rise in the average cost of theft claims in 2005 (+ 4%).

II. Developments

II.1 The Catala report or the draft reform of the law of obligations

On the Bicentenary of the Civil Code, the President of the Republic Jacques Chirac entrusted to the Chancellery the task of revising civil law in order to “modernise the texts and adapt them to developments in society”. The section relating to the law of obligations resulted in the setting up of a working group under the aegis of Professor Catala and composed of prestigious university professors. The draft reform of the law of obligations and the law relating to prescription periods, known as the Catala report, was submitted to the Ministry of Justice on 22 September 2005. Two items in this report have a direct effect on motor insurance activity: compensation for the losses arising as a result of a personal injury on the one hand, and compensation for the victims of road traffic accidents on the other. This text which mainly codifies current judicial solutions does, however, make some proposed changes to the law of 5 July 1985 on road traffic accidents.

II.2 Discussions on bodily injuries

2005 was laden with discussions on compensation for bodily injuries.

In the first place, a law on equal rights and opportunities for the disabled was adopted in February 2005, setting out the rights of the disabled to compensation.

With the aim of ensuring fair compensation for victims of bodily injuries, the former Secretary of State for the rights of victims entrusted to the first President of the Court of Cassation, in November 2004, the task of drawing up a specification of bodily injuries. Thus a working group was set up to this end, under the chairmanship of Jean-Pierre Dintilhac, President of the Second Civil Chamber of the Court of Cassation. The latter, after a hearing with all the players involved in bodily injuries including insurers, submitted his report in July 2005.

Listing the loss elements in a non-restrictive manner, this specification which is based on a three-way division (pecuniary and non-pecuniary losses of direct victims and losses of knock-on victims) is primarily intended to be indicative and flexible so that it does not constitute an obstacle to the creation of loss elements not envisaged by the list. Fair and pragmatic for victims, it has, however, been devised without losing from sight the issue of general interest with regard to public expenditure or the benefits paid by the social security bodies.

Moreover, it is closely linked to the methods of recourse used by the direct payment institutions, the working group recommending dissociating the nature of the loss from whether it is included or not in the recourse of direct payment institutions in order to allow all payments paid to victims to be recovered. This list is an integral part of the concept of item by item recourse.

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Finally, to meet the needs of victims, insurers continue to consider the possibilities of offering services to the most severely handicapped victims rather than sums of money.

II.2 Urban unrest

The urban unrest which occurred in France between 27 October and 16 November 2005, with more than 9,000 vehicles burnt at an overall cost of €39M had a major impact on fire claims in motor insurance which recorded a rise in frequency of more than 10% and reached a level equal to 1.4‰ for 2005.

The French State refused to acknowledge its responsibility for all the damage caused within the context of these events. Proceedings are under way.

II.3 The veto applied by CNIL on the use of geopositioning when taking out in-surance

By a resolution of 17 November 2005, the National Data Protection Commission (CNIL) vetoed the installation in the vehicles of young drivers of GPS type geopositioning devices with the aim of allowing them to benefit from reduced premiums. The infringement of individual freedom of this motor insurance offering intended for young drivers who would have voluntarily taken out the cover is regarded as disproportionate in relation to its objective. The action of collecting information on the driver’s speed is similar to the treatment of offences, an activity which is not within the scope of private bodies. Moreover, the consent of the driver concerned is not sufficient to legitimise the processing of personal data.

This decision put a stop in France to the “pay as you drive” system adopted by British insurers, even though hirers and transport businesses already have recourse to this type of geopositioning device.

II.4 Transposition of the Mediation Directive

The law of 15 December 2005 transposed the Directive of 9 December 2002 on Insurance Mediation. It has therefore created in France a legal requirement for the insurance or reinsurance intermediary to provide pre-contractual information.

The latter will be obliged to issue a formal statement of the customer’s needs and requirements and the basis of his advice (requirement for a written statement drawn up by the intermediary in several copies, etc...)., the presentation of special conditions not being sufficient to meet the requirement to provide information and advice imposed by the law of 15 December 2005. Therefore, the special conditions will not have to be amended; on the other hand, a new document will have to be issued by the intermediary to the insured when cover is taken out.

Without this record, the intermediary may be held liable for failing to provide the necessary information and advice. In addition, the law of 15 December 2005, by laying down the powers of the supervisory authority, allows the latter to impose sanctions on the intermediary in the event of a violation of the Insurance Code.

In any case, the entry into force of this law is dependent on the setting up of the register of insurance intermediaries.

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II.5. Option to cancel the contract

In the course of 2004, the public authorities entered into discussion with all the institutions offering contracts with a wide circulation with automatic renewal, such as telephone subscriptions. The aim is to remind consumers, before each annual expiry date, that they have an option to cancel. The non-life insurance sector is of course affected, motor insurance in particular.

It is within this context that the Châtel law of 28 January 2005 was passed and came into force on 28 July 2005 which has extended the options for cancelling insurance contracts covering natural persons (outside their business activities) by the insured.

Under the terms of the new Article L. 113-15-1 of the Insurance Code, the insurer is required to inform via a notification of the expiry date, the deadline up to which the insured has the option of cancelling the automatic renewal of an insurance contract. When this information is sent within 15 days of this date, the insured has a period of 20 days from the date of despatch of the notification to cancel the contract. In the absence of any information, the insured can terminate his renewed contract at any time, without prior notice or penalty. Under this scenario, a pro-rata premium will be due for the period of cover, from the last expiry date until the date that the cancellation takes effect.

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CEA Statistics N°27 | 75 Country guide