Insurance and reinsurance in France: overview

A Q&A guide to insurance and reinsurance law in France.

The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in France.

To compare answers across multiple jurisdictions visit the Insurance and Reinsurance Country Q&A tool.

This Q&A is part of the PLC multi-jurisdictional guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-mjg.

Yannis Samothrakis, Dewey & LeBoeuf LLP
Contents

Market trends and regulatory framework

1. What have been the main trends in the insurance and reinsurance markets over the last 12 months?

Insurance market

Overview. France has a closely regulated insurance market, with a significant proportion of the legal framework deriving from EU legislation. Consequently, the European dimension of the French insurance market is key to understanding its structure and operations.

All insurance entities established in France are currently subject to prudential supervision by the Prudential Supervision Authority (Autorité de Contrôle Prudentiel) (ACP). Ordinance 2010-76 of 21 January 2010 merged the former insurance supervisor ACAM (Autorité de Contrôle des Assurances et des Mutuelles) and insurance regulator CEA (Comité des Entreprises d'Assurance) with the authorities responsible for supervising banking institutions to form the ACP. The aim of this reorganisation was to enhance control over the different sectors under a single authority, and to enable the supervision of financial conglomerates. The ACP is an independent administrative authority operating under the auspices of the French central bank (Banque de France). Its aim is to safeguard the stability of the financial system (prudential supervision) and to protect banking and insurance customers (supervision of business practices).

There were 1129 undertakings subject to the ACP's supervision in 2009, including mutuals and provident organisations (ACP, 2009), down from 1268 in 2009 (originally this was published in 2010 as 1313 undertakings, but has since been revised by the regulator due to a change in statistical methods), 1420 in 2008 and 1522 in 2007.

Mergers have formed a key trend in the mutual insurance market, which entails a progressive reduction of the number of mutual-type insurance entities.

Market access. The French market is mature and highly competitive. The legal and regulatory framework is considered to limit the scope for innovation, particularly for life consumer products. Establishing a subsidiary or buying an existing insurer are typical routes for entering the French market. Insurers established in the European Economic Area (EEA) can also conduct business in France by establishing a branch or on a cross-border basis.

International dimension. According to the figures provided by the former licensing authority (CEA), there were 95 branches of EEA insurers in France on 31 December 2010, while 1046 insurers had notified their intention to operate on a cross-border basis.

Reinsurance market

Overview. Since the implementation of Directive 2005/80/EC on reinsurance (Reinsurance Directive), a reinsurer established in France must now obtain a licence from, and be supervised by, the ACP. Insurers may cede their risks to reinsurers established outside the EEA.

Market. With 3.5% of premiums ceded globally in non-life and 4.5% in life, the French reinsurance market constitutes the fifth largest market internationally in non-life and the fourth in life (Association des Professionnels de la Réassurance en France (APREF), 2009 (see box, Main insurance/reinsurance trade organisations)).

Market access and international dimension. Except for specific collateral requirements, there are no significant requirements for non-EEA reinsurers that reinsure French ceding companies. Reinsurance business can be conducted in France through a subsidiary, a branch or on a cross-border basis.

 
2. What is the regulatory framework for insurance/reinsurance activities?

Regulatory framework

The regulatory framework applying to insurance and reinsurance businesses is provided by the:

  • Insurance Code.

  • Mutual Code.

  • Social Security Code.

  • The Financial and Monetary Code.

General provisions from statutes, regulations and/or from other codes (such as the Civil Code) also apply.

Regulatory bodies

The ACP is responsible for granting licences to insurance and reinsurance companies. It supervises changes in shareholding structure (particularly in relation to mergers and acquisitions) and changes in management for insurers and reinsurers.

The ACP is responsible for the prudential supervision of insurers and reinsurers, ensuring that supervised entities comply with laws and regulations in the interest of policyholders, insureds and beneficiaries (Article L. 612-1, Financial and Monetary Code).

The ACP closely monitors the financial situation of insurers and reinsurers to ascertain their ability to honour their obligations, and therefore has a right to:

  • Access all relevant information concerning the supervised entities (Article L. 612-24, Financial and Monetary Code).

  • Require from supervised entities that they cease practices which are contrary to good professional practices and jeopardise the interests of policyholders or beneficiaries (Article 612-30, Financial and Monetary Code).

  • Impose safeguarding measures (Article L. 612-31 and seq., Financial and Monetary Code) and/or disciplinary sanctions (L. 612-39, Financial and Monetary Code).

The ACP was formed in 2010 through the merger of the former insurance supervisor ACAM and insurance regulator CEA with the authorities responsible for supervising banking institutions (see Question 1, Insurance market: Overview).

 

Regulation of insurance and reinsurance contracts

3. What is a contract of insurance for the purposes of the law and regulation? How does it differ from a contract of reinsurance?

Contract of insurance

There is no legal definition of an insurance contract in the Insurance Code. However, it commonly refers to an agreement where one party (the insurer), agrees to provide coverage to another party (the insured), on the occurrence of a specified event that is beyond the control of either party, in exchange for receiving payment of premiums from the policyholder.

Regulation (EU) No 36/2012 concerning restrictive measures in view of the situation in Syria and repealing Regulation (EU) No 442/2011 provides, for the first time (to the best of the author's knowledge), an EU definition of insurance. This reads "…"insurance" means an undertaking or commitment whereby one or more natural or legal persons are obliged, in return for payment, to provide one or more other persons, in the event of materialisation of a risk, with an indemnity or a benefit as determined by the undertaking or commitment…" (Article 1(1), Regulation (EU) No. 36/2012).

Contract of reinsurance

The definition of reinsurance under French law is similar to the definition contained in the Reinsurance Directive. In essence, reinsurance is defined as the activity of an undertaking (other than a special purpose vehicle) which consists in accepting risks ceded by an insurer or a reinsurer (Article L. 310-1-1, Insurance Code).

 
4. Are all contracts of insurance/reinsurance regulated?

Types of insurance contract that fall within regulation

Insurance contracts are not regulated per se, in the sense that prudential supervision applies to entities and not to contracts. For instance, there is no pre-approval of contract terms, nor does the ACP systematically check terms and conditions for compliance. Nevertheless, all insurance contracts are subject to a wide variety of rules to be found in the Insurance Code, as well as in other codes or statutory provisions. There is also extensive case law applying to insurance contracts.

As a general rule, the most regulated contracts are consumer insurance contracts, with an exceptionally protective set of rules applying to unit-linked life assurance contracts.

Types of contract that fall outside regulation

Only entities, and not contracts, are the subject of prudential regulation (see above, Types of insurance contract that fall within regulation). No contract is therefore outside of regulation. Nevertheless, for large risks, parties benefit from a large discretion and may avail themselves of much of the restrictions applying to consumer contracts. They may, for example, freely choose applicable law (see below, Choice of law).

Choice of law

It is prohibited to seek insurance coverage for a risk located in France with insurance companies that are not established and authorised in the EEA.

Under Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I Regulation), an insurance contract is subject to French law if the risk is located in France at the time of the contract's conclusion (Article 7).

However, for large risks, parties are free to choose another law. For all other risks, parties are given some freedom on the choice of law, which means that a contract may be (but is not necessarily) subject to French law if one of the following situations applies:

  • The risk is in France at the time of the contract's conclusion.

  • The policyholder has his habitual residence in France.

  • For life assurance, if the policyholder is a French national.

  • For insurance contracts covering risks limited to events occurring in France but where the risk is in another EU member state.

  • Where the policyholder pursues a commercial or industrial activity or a liberal profession and the insurance contract covers two or more risks which relate to those activities, if one of these risks is in France or if the policyholder has his habitual residence in France.

 

Corporate structure

5. What form of corporate organisation can insurers take in your jurisdiction?

Insurers can take the following legal forms:

  • Limited companies (sociétés anonymes).

  • European companies (societas europaea).

  • Mutuals.

  • Provident organisations (instititions de prévoyance), which are non-profit organisations managed by representatives of employers and workers.

 

Regulation of insurers and reinsurers

6. Are all insurers and reinsurers regulated in your jurisdiction? Are they all regulated in the same way?

Insurers and reinsurers established in France must obtain a licence from and are supervised by the ACP. However, reinsurers are subject to a less restrictive set of rules.

French insurers can be reinsured by non-EEA reinsurers. Non-EEA reinsurers must provide collateral to the ceding insurers to secure their obligations. EEA reinsurers are exempt from doing so (Article R. 332-3-3, Insurance Code).

 
7. Can insurers or reinsurers carry on non-insurance business? Are there any restrictions on their business activities?

Insurers can carry on non-insurance business provided this business remains limited in relation to the insurer's overall volume of business (Article L. 322-2-2, Insurance Code). In 1993, the Minister of Economy acknowledged that the term "limited" was ambiguous and called for a case-by-case analysis by the ACP. The intention is to avoid jeopardising the insurer's solvency because of these non-insurance activities. For example, in the banking sector, non-banking activities are allowed to the extent that they remain below 10% of the net banking product (Article 3, Regulation 86/21 of the Advisory Committee on Financial Legislation and Regulation).

Non-insurance business should generally be an accessory to the main insurance business of the undertaking.

 
8. Are there any statutory limits or other restrictions on, or requirements relating to, the transfer of risk by insurance or reinsurance companies?

To qualify as insurance, contracts must be subject to an aléa (risk). There is no specific regulation concerning this, but a contract that a judge considers does not transfer a sufficient degree of risk is not treated legally as an insurance or reinsurance contract. There are no restrictions on an insurance or reinsurance company's transfer of risk to another insurance carrier.

 

Operating restrictions

Authorisation or licensing

9. Does the entity or person have to be authorised or licensed in your jurisdiction?

Insurance/reinsurance providers

Insurance (Article L. 321-1, Insurance Code) and reinsurance (Article L. 321-1-1, Insurance Code) undertakings must obtain a licence from the ACP before commencing business. The licence is granted for specific branches.

An insurer may not be licensed for both life and non-life insurance (Article L. 321-1 Insurance Code). Reinsurers may be licensed for life, non-life or for both (Article L. 321-1-1, Insurance Code).

Key steps of the licensing process. The ACP bases its decision on a number of criteria including the (Article L. 321-10, Insurance Code):

  • Technical and financial means.

  • Integrity and experience of the managers.

  • Shareholding structure and quality of shareholders for limited companies.

The ACP may grant the licence, conditionally or unconditionally, or refuse it. The grounds for refusal are notified to the applicant who can present its written comments. The applicant can challenge the refusal before the French supreme administrative court (Conseil d'Etat).

Licence withdrawal. The licence can be withdrawn by the ACP (Article L. 325-1, Insurance Code) in the following situations:

  • Persistent lack of activity.

  • Imbalance between financial means and activities.

  • Major changes in the shareholding structure or in the shareholders' quality.

  • Violation of the conditions imposed by the licence.

Insurance/reinsurance intermediaries

The law applicable to insurance mediation is the transposition into French law of Directive 2002/92/EC on insurance mediation (Insurance Mediation Directive) and applies to insurance and reinsurance intermediaries.

Any person conducting a mediation activity in exchange for remuneration is treated as an insurance or reinsurance intermediary (Article L. 511-1, Insurance Code). Insurance mediation is defined as the activity which consists in introducing, proposing or facilitating the conclusion of insurance contracts (Article L. 511-1, Insurance Code). Remuneration means any agreed payment or any other form of "economic advantage" (avantage économique) linked to the insurance mediation activity (Article R. 511-3, Insurance Code).

Intermediaries must:

  • Fulfil a certain number of requirements relating, among others, to experience, integrity and skills.

  • Register with the Organisation for the Register of Insurance Intermediaries (Organisme pour le Registre des Intermédiaires en Assurance) (ORIAS).

They are supervised by the ACP.

Other providers of insurance/reinsurance-related activities

Any other provider of services that does not qualify as an insurance intermediary is not subject to licensing requirements. However, when a regulated entity outsources tasks to these providers (for example, claims management), the providers may be subject to the ACP's scrutiny for the outsourced services.

 
10. What are the main exemptions or exclusions from authorisation or licensing that are available?

Insurance/reinsurance providers

There are no exceptions to licensing rules for insurers and reinsurers established in France. For foreign insurance companies intending to carry on insurance business in France, a distinction between EEA and non-EEA insurers applies:

  • EEA insurers may conduct business in France on a cross-border basis or through a branch, provided they are licensed for the business in their home member state and they have followed a specific notification procedure.

  • Non-EEA insurers are generally required to obtain a licence before conducting any business in France. This does not apply to non-EEA reinsurers, who may conduct business in France provided they are licensed in the jurisdiction where their head office is located (Article L. 310-6, Insurance Code).

Insurance/reinsurance intermediaries

There are no exceptions to licensing rules for insurance and reinsurance intermediaries established in France. As with insurance/reinsurance providers, for foreign intermediaries, there is a distinction depending on whether they where established in or outside the EEA:

  • Intermediaries established in other EEA countries may conduct business in France on a cross-border basis or through a branch, provided they comply with prior notification requirements.

  • Intermediaries established outside the EEA are treated as if they were established in France and must therefore satisfy the requirements provided by the Insurance Code. They must also register with ORIAS.

Other providers of insurance/reinsurance-related activities

Not applicable (see Question 9, Other providers of insurance/reinsurance-related activities).

Restrictions on ownership or control

11. Are there any restrictions on the ownership or control of insurance-related entities?

Insurance/reinsurance providers

The owners and persons who control insurance companies are reviewed by the ACP to determine their fitness to control an insurer or a reinsurer. The focus of the review is on the experience, competence, integrity and where applicable, the financial soundness of the owner or controlling person.

Individuals who have been convicted of certain criminal offences cannot engage in the business of insurance.

There are no restrictions or authorisations that apply to foreign providers of insurance-related services, as long as they do not qualify as insurance or reinsurance intermediaries under French law (see below, Insurance/reinsurance intermediaries).

Insurance/reinsurance intermediaries

Managers and owners of insurance and reinsurance intermediaries must satisfy requirements of integrity and professional qualification (Articles L. 512-4 and L. 512-5, Insurance Code).

Integrity. Owners and managers of intermediaries are subject to the same restrictions as those applying to owners and managers of insurance or reinsurance companies. In particular, persons having been convicted of a number of criminal offences (Article L. 322-2, Insurance Code) will be prohibited from managing or owning insurance intermediaries (such as, money laundering and drug trafficking).

Professional qualifications. Owners and managers of insurance intermediaries are subject to three different degrees (Level I to III) of qualification according to their nature (Article R. 512-8, Insurance Code). Brokers and agents are classed as Level I, which requires them to have a certain degree of experience or to have been trained for at least 150 hours. In addition, all intermediaries must take out insurance covering their professional liability (Article L. 512-6, Insurance Code) and must obtain a financial guarantee (Article L. 512-7, Insurance Code).

Other providers of insurance/reinsurance-related activities

There are no specific requirements provided they do not qualify as intermediaries.

 
12. Must owners or controllers be pre-approved by or notified to the relevant authorities before taking, increasing or reducing their control or ownership of the entity?

Insurance/reinsurance providers

Insurance and reinsurance companies must notify the ACP of any changes in the shareholding structure (Articles L. 322-4 and R. 322-11-1, Insurance Code). Under certain circumstances, the ACP may oppose this change.

Insurance/reinsurance intermediaries

Pre-approval or notification is not required.

Other providers of insurance/reinsurance-related activities

Pre-approval or notification is not required.

Ongoing requirements for the authorised or licensed entity

13. What are the key ongoing requirements with which the authorised or licensed entity must comply?

Insurance/reinsurance providers

Insurers and reinsurers must generally comply with a complex and exhaustive set of rules found in the Insurance Code, which covers all aspects of the business. From a prudential point of view, insurers and reinsurers must comply with requirements relating to the solvency margin, provisioning, management of assets and the general day-to-day operation of the undertaking (ranging from complaints-management to money laundering procedures).

There are several reporting requirements applying to insurers and reinsurers. This includes submitting an annual written report on the solvency of the entity, assessing its ability to perform its obligations in the future (Article L. 322-2-4, Insurance Code).

In addition, insurers and reinsurers must submit filings to the ACP on a regular basis, such as the annual filing (dossier annuel) which contains a description of the entity's activities and its accounts (Articles A. 344-3 and A. 344-6, Insurance Code).

Insurance and reinsurance companies must notify the ACP of any changes in the shareholding structure (see Question 12, Insurance/reinsurance providers).

The ACP may generally require any additional information which it reasonably needs to supervise the entity.

Insurance/reinsurance intermediaries

There are no ongoing requirements.

Other providers of insurance/reinsurance-related activities

There are no ongoing requirements.

Penalties for non-compliance with legal and regulatory requirements

14. What are the possible consequences of an entity failing to comply with applicable legal and regulatory requirements? What recourse do policyholders have if they have done business with a non-approved entity?

Insurance/reinsurance providers

The ACP can impose a range of sanctions for non-compliance with legal and regulatory requirements including (Article L. 612-39, Financial and Monetary Code):

  • A warning.

  • A reprimand.

  • A prohibition on carrying out certain transactions and other restrictions on the conduct of the business.

  • Temporary suspension of one or more of the firm's corporate officers.

  • Total or partial withdrawal of licence.

  • Ex officio transfer of all or part of the portfolio of contracts.

  • Fines up to a maximum of EUR100 million (as at 1 January 2012, US$1 was about EUR0.8).

The sanctions depend on and must be proportional to the gravity of the breaches, with fines imposed only when breaches are considered by ACP as serious and/or when the insurer has been acting in bad faith. Since the adoption of Law No 2010-1249 of 22 October 2010, the principle is now that sanctions imposed on supervised entity are made public, unless publicity would cause significant disruptions in financial markets or generate a disproportionate damage to the parties involved.

Contracts taken with an unlicensed insurer are void (Article L. 310-2, Insurance Code).

More generally, policyholders and beneficiaries have a variety of contentious and non-contentious remedies, the most common ones being the following:

  • Civil lawsuits can be initiated against insurers before civil courts.

  • The French Insurance Federation (FFSA) has put in place an insurance ombudsman who will examine complaints made against insurers that are members of the FFSA.

  • Major insurers tend to have an in-house independent ombudsman that can deal with customers' complaints.

Insurance/reinsurance intermediaries

Intermediaries can be exposed to various sanctions ranging from fines to imprisonment for their managers, if they are found in breach of legal requirements (for example, if the intermediary is not registered) (Articles L. 514-1 to L. 514-4, Insurance Code).

Other providers of insurance/reinsurance-related activities

There are no consequences for other providers as they are unsupervised.

Restrictions on persons to whom services can be marketed or sold

15. Are there any restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold?

Any individual can generally take out insurance. Capacity is subject to general contract law principles under which any individual who is not legally declared as incapable can conclude a contract (Article 1123, Civil Code). Therefore, any person deemed legally capable can contract with an insurer. However, minors and adults under legal protection are traditionally excluded from this rule. Therefore these persons cannot conclude a life insurance contract on their own and require representation.

The following parties cannot take out life insurance (Article L. 132-3, Insurance Code):

  • Minors under the age of 12.

  • Adults under wardship.

  • Persons in psychiatric hospitals.

Similarly, a death benefit contract cannot be taken out on the life of a minor under the age of 12, without parental, tutorial or guardian authority (Article L. 132-4, Insurance Code).

 

Reinsurance monitoring and disclosure requirements

16. To what extent can/must a reinsurance company monitor the claims, settlements and underwriting of the cedant company?

There is no restriction on the reinsurer's right to monitor the claims, settlements and underwriting of the cedant company. The parties set out whether and to what extent the reinsurer can monitor. Reinsurance and retrocession contracts typically include:

  • A right of inspection for the reinsurer.

  • That the cedant company must provide specific information to the reinsurer for every important claim.

 
17. What disclosure/notification obligations does the cedant company have to the reinsurance company?

A cedant must provide the reinsurer with enough technical information on the ceded contracts to allow the reinsurer to assess the risk it intends to underwrite. The reinsurer is also entitled to receive appropriate responses to questions on the underwriting or claims handling by the cedant company.

The reinsurer is typically entitled under the reinsurance contract to receive specific information from the cedant company on important claims (see Question 16).

 

Insurance and reinsurance policies

Content requirements and commonly found clauses

18. What are the main general form and content requirements for insurance policies? What are the most commonly found clauses?

Form and content requirements

In addition to the general principle of good faith imposed on contractual parties regulated by French law (Article 1134, Civil Code), the Insurance Code provides specific requirements for insurance policies concerning pre-contractual and contractual information and documentation.

These requirements constitute a complex set of rules which generally concern retail insurance contracts. The courts enforce these provisions in a particularly stringent manner for life insurance, with severe consequences for insurance undertakings found in non-compliance.

Commonly found clauses

Commonly found clauses will depend on the type of policy. Generally, the Insurance Code contains specific requirements as to what information must be included in the insurance contract which entails that certain clauses are required, for example:

  • The insurance policy must indicate, among others (Article L. 112-4, Insurance Code):

    • the insured goods or persons;

    • the nature of the insured risks;

    • the date and time on which the cover starts;

    • the amount covered;

    • the premiums;

    • applicable law.

  • Specific information must be provided in the information notice (note d’information) or in the table that must be inserted on the first page of the general conditions (encadré) (Articles L. 132-5-1 et seq. and Articles A. 132-4 and A. 132-8, Insurance Code).

  • Insurance contracts must include a direct quotation of Article L. 114-1 of the Insurance Code relating to the duration of the statute of limitation (see Question 20).

Other typical clauses include:

  • Cooling-off rights.

  • Exclusions, which must be drafted in very clear fonts (caractères très apparents).

  • Termination.

  • Profit sharing for life assurance.

  • Alternative conflict resolution options (in particular, available ombudsman schemes).

 
19. Is facultative or treaty reinsurance more common? What are the most commonly found clauses in reinsurance policies?

Facultative/treaty reinsurance

Facultative and treaty reinsurance are available on the French market. Treaty reinsurance is more common than facultative reinsurance.

Commonly found clauses

Reinsurance policies generally contain the following clauses:

  • Follow the fortune (partage du sort).

  • Right of inspection (droit de regard).

  • Applicable law (see Question 35).

  • Geographical scope.

  • Termination.

  • Arbitration (see Question 34).

As the cedant typically requires collateral from their reinsurers, a specific security clause is usually inserted. The clause determines the nature of the security (such as, pledging of assets or cash deposit) and the conditions under which it may be liquidated.

The inclusion of a set-off clause is also often recommended, particularly when the collateral takes the form of cash deposits, because these deposits may generate a counterparty risk for the reinsurer in case of insolvency of the cedant.

Implied terms

20. Are there any terms that are implied by law or regulation (even if not included in the insurance or reinsurance contract)?

There are a significant number of terms that are implied by law or by the courts, such as the mandatory Insurance Code provisions, which include, but are not limited to, most of the provisions that protect policyholders or beneficiaries. For example, the terms and conditions of unit-linked life assurance contracts are subject to an exhaustive set of rules ranging from the number and title of documents to specific sentences that must be inserted in these documents.

Recent cases have also added a requirement that insurance contracts include a direct quotation of Article L. 114-1 of the Insurance Code relating to the duration of the statute of limitation.

Customer protections

21. What customer protections are generally included in insurance policies to supplement relief available under general law?

Generally, contract terms define the rights and duties of the parties.

However, Directive 93/13/EEC on unfair terms on consumer contract (Unfair Contract Terms Directive) (transposed into French law by Law No 95-96 and codified in the Consumer Code) has reinforced the notion of good faith, to prevent a significant imbalance between consumer rights and obligations, and sellers and suppliers. This means that:

  • Terms found to be unfair are not enforceable against consumers.

  • Any ambiguity or lack of clarity in the drafting of contractual terms is interpreted in the consumer's favour (Article L. 133-2, Consumer Code).

The general requirement of fairness has been supplemented by two lists of example terms (Articles R. 132-1 and R. 132-2, Consumer Code). The first list contains 12 terms that are automatically considered unfair, while the second list provides ten terms that are presumed unfair.

In addition, implied terms, mandatory provisions and case law have created a complex system of rules aimed at protecting policyholders and beneficiaries. For example, exclusion clauses are only enforceable if typed using very distinctive fonts (Article L. 112-4, Insurance Code).

Standard policies or terms

22. What are the main standard policies or terms produced by trade associations or relevant authorities?

Legislation and regulation provide, for certain type of products, instructions on drafting, which range from a template to be used by the insurer to general instructions on the information to be included in contracts. One example is the imposed drafting and structuring of unit-linked life insurance contracts, which has given rise to significant litigation. These are all contained in the Insurance Code.

Trade association and other professional organisations are not permitted to produce standard terms, as this may breach national and EU competition law, in particular Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). The insurance sector had benefited from an exemption allowing for the establishment of standard policy conditions, under Regulation (EC) 358/2003 on the application of Article 101(3) of the TFEU to certain categories of agreements, decisions and concerted practices in the insurance sector. However, with the entry into force of Regulation (EU) 267/2010 on the application of Article 101(3) of the TFEU to certain categories of agreements, decisions and concerted practices in the insurance sector (Insurance Block Exemption Regulation), this exemption has been removed.

 

Insurance and reinsurance policy claims

Establishing an insurance claim

23. What must be established to trigger a claim under an insurance policy?

The insured must prove that the claim falls within the scope of the cover. However, the burden of proving that the damage or alleged damage sustained by the insured is excluded lies with the insurer.

An insured can make a claim to the insurer if it incurs a loss which is within the policy limits and is not covered by a policy exclusion. Insurance policies typically have detailed provisions on when a claim must be made and the required notice to the insurer.

Nevertheless, if the insurance contract requires the insured or policyholder to make the claim within a specific time frame, the insurer can only refuse to cover such claim if it demonstrates that the delay has caused prejudice (that is, the insurer must pay unless it can prove that the delay has aggravated the cost of the claim) (Article L. 113-2, Insurance Code).

Third party insurance claims

24. What are the circumstances in which third parties can claim under an insurance policy?

The victim (and/or their insurer) can directly bring a liability claim against the liable party's insurer (Article L. 124-3, Insurance Code).

Beneficiaries under a life insurance policy are third parties to the contract, and can make claims against the insurer.

Further, the French Supreme Court (Cour de cassation) has given the opportunity to victims of an insured to bring a claim in tort where the damage suffered was caused by the insurer's behaviour (Cass. Civ 2e, 10 mai 2007, No. 06-13269, "Renaissance des Quais"). In this case, the judges held that a third party could also sue an insurer in tort under Article 1382 of the Civil Code (the legal basis for tort actions) in addition to the claim available to third parties under Article L. 124-3 of the Insurance Code.

Time limits

25. Is there a time limit outside of which the insured/reinsured is barred from making a claim?

There is a two-year limitation period on insurance contract claims (Article L. 114-1, Insurance Code). This insurance-specific limitation period cannot be contractually set aside by the parties (Article L. 114-3, Insurance Code). Further, the exact text of this article must be included in the contract (Article R. 112-1, Insurance Code). This only applies to insurance and not to reinsurance.

For reinsurance, the applicable time limit is generally the statute of limitation for contracts, that is, five years (subject to certain conditions).

Enforcement

26. Can the original policyholder or other third party enforce the reinsurance contract against a reinsurer?

The policyholder or a third party cannot enforce the insurance contract against the reinsurer. The insurer remains solely responsible to policyholders and beneficiaries (Article L. 111-3, Insurance Code). If the insurer becomes insolvent, the policyholder cannot act directly against the reinsurer.

Remedies

27. What remedies are available for breach of an insurance policy?

General rules

Breach of contract can take several forms for insurance, including:

  • Non-payment of premiums by the policyholder.

  • Non-payment of a claim by the insurer.

  • False declaration by the insured.

The principle is that the breach of a contractual obligation by one party is subject to the general rules governing contractual liability under French law, that is, compensation is due to the other party if the breach has caused damage.

Good faith is a general requirement of contract law in France and acting in bad faith may be construed as breach of contract.

Specific rules

However, the Insurance Code contains specific provisions contemplating these breaches in the context of insurance contracts. In most cases, these provisions aim to enhance the protection of policyholders and beneficiaries. For example, Article L. 113-3 of the Insurance Code contains a specific procedure in case of non-payment of premiums by the policyholder, which prevents the insurer from terminating the contract immediately. The insurer must summon payment and wait for a certain time period before withholding and eventually terminating the contract.

For unit-linked life assurance products, French law has introduced a unique remedy for policyholder for the breach, by the insurer, of pre-contractual information requirements. In the case of breach, the cancellation period, which is generally 30 days from the contract's conclusion, does not start until the insurer has fully complied with the pre-contractual information requirements. This means that the policyholder can claim back his premiums at any time during the life of the policy, even though the value of the units may be less than the initial premiums. The result is that the insurer bears the downward investment risk. The bad faith of the policyholder is irrelevant in this case, and it constitutes a notable exception to the good faith principle of French contractual law.

Punitive damage claims

28. Are punitive damages insurable in your jurisdiction? Can punitive damages be reinsured if they are covered by an underlying policy?

There are no punitive damages in France. Therefore, there is no specific prohibition of covering punitive damages. Whether punitive damages in other jurisdictions are covered is therefore a contractual matter freely negotiated between the parties, both for insurance and reinsurance.

 

Insolvency of insurance and reinsurance providers

29. What is the regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services? What regulatory and/or other protections exist for policyholders if the insurance company is insolvent?

Safeguard proceedings

Insurance and reinsurance companies are subject to constant scrutiny by the ACP which focuses on safeguarding the interests of policyholders, insureds and beneficiaries. In that context, the ACP may take all appropriate measures to safeguard the viability of the entity whenever there is a disruption between the solvency and activity of the insurer (such as appointing a provisional director or requiring an increase of the solvency margin).

Liquidation proceedings

If the entity's financial difficulties become critical and jeopardise the insured's interests, the ACP can withdraw its licence, therefore triggering liquidation proceedings (Article L. 326-2, Insurance Code). In this case, the general provisions of the Commercial Code dealing with insolvent companies apply, provided they do not conflict with the Insurance Code. The ACP must appoint a liquidator responsible for checking the insurer's receivables and the entity's statement of assets and liabilities. In addition, all contracts that the entity has underwritten lapse on the 40th day at 12 noon from publication in the Official Journal of the decision concerning licence withdrawal (Article L. 326-12, Insurance Code).

 
30. Can excess coverage "drop down" to provide coverage at levels concerning which the existing coverage is insolvent?

This issue is not addressed by any specific statutory provision. It therefore depends on the contractual arrangements.

 
31. Is a right to set-off mutual debts and credits recognised in an insolvency proceeding involving an insurer or reinsurer?

French law provides for:

  • A general offset regime governed by the French Civil Code.

  • A specific cancellation and offset regime applicable to financial obligations and governed by the French Monetary and Financial Code (FMFC).

General offset regime

The general offset mechanism applies to any contract and in the absence of any contractual provisions. The two debts are reciprocally extinguished to the extent of their respective amounts. To be offset, the mutual debts must:

  • Be entered into by the same parties.

  • Have as their object a sum of money or a certain quantity of fungible assets of the same kind, which must be liquid and due (liquides et exigibles).

Specific offset regime

The specific regime applies, among others, to financial obligations resulting from any contract giving rise to a cash settlement or a delivery of financial instruments when each of the parties is an entity with the benefit of the provisions of Article L. 531-2 of the FMFC, which includes insurance and reinsurance companies (although only insurance companies subject to the Insurance Code are included, which excludes mutuals and provident institutions). Agreements relating to financial obligations may be terminated, and the debts and receivables associated with them offset (Article L. 211-36-1, FMFC). The parties may, in this respect, provide for a single balance to be established regardless of whether these financial obligations are governed by one or more agreements or framework agreements, which is the key difference with the general regime (see above, General offset regime). The terms of termination, valuation and set-off must be laid down by the parties in an agreement or framework agreement (Article L. 211-36-1, FMFC).

 

Taxation of insurance and reinsurance providers

32. What is the tax treatment for insurers, reinsurers, and other persons or entities providing insurance and reinsurance-related services?

Corporate tax

The profits relating to the insurance/reinsurance activity deemed to be carried out in France are subject to corporate tax under the common French tax provisions. The tax rate is currently 33.33% (increased to 34.43% for the share of taxable profits in excess of EUR2.289 million).

In addition to corporate tax, a special tax applies on the excess of reserves booked by insurance companies. The amount of the excess reserves which is reversed at the closing of a fiscal year is subject to the special tax. The tax applies on a percentage of the excess reserves equal to the rate of the corporate tax applicable at the time the reserves were booked. The tax is calculated at 0.4% per month from the closing of the fiscal year during which reserves were booked until the closing of the fiscal year in which the excess reserves were reversed.

Insurance tax

Any insurance or reinsurance contract covering a risk located in France or whose beneficiary is a French tax resident is subject to a specific annual tax (insurance tax). The basis of insurance tax comprises all premiums and related contributions paid to the insurer or reinsurer. The tax rates vary according to the nature of the risk covered and range between 7% and 30%. Certain types of insurance and reinsurance contracts are exempt from insurance tax (such as life insurance contracts and contracts covering risk relating to farmland, farm products or risk relating to fluvial or airways transportation). Insurance tax applies in place of the transfer tax (droit d'enregistrement).

In addition to insurance tax, insurance premiums may be subject to a surtax, to finance special guarantee funds. For example, a 12% surtax has been applied since March 2009 on premiums received by insurance companies relating to natural catastrophes insurance contracts.

Value added tax (VAT)

A VAT exemption applies to insurance and reinsurance transactions and all related services provided by an insurance underwriter or intermediary.

 

Insurance and reinsurance dispute resolution

33. Are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes?

The resolution of insurance-related disputes can be achieved through:

  • Extrajudicial procedures. Disputes relating to insurance matters are often resolved through three alternative dispute resolution mechanisms:

    • mediation (mediation);

    • settlement (transaction);

    • arbitration (arbitrage).

    Mediation has been institutionalised with the adoption of a Mediation Charter by each of the main insurance trade organisations, designed to establish a dispute resolution mechanism for insurers and policyholders or beneficiaries. Under the Mediation Charter of the French Federation of Insurance Companies (Fédération Française des Sociétés d'Assurance) (FFSA) (see box, Main insurance/reinsurance trade organisations), the insurer and the insured can resort to the in-house mediator of the insurer or refer the matter to the FFSA-appointed mediator.

    Some insurers also have their own in-house ombudsman.

  • Judicial procedures. If the alternative mechanisms fail, the dispute can be brought before national courts. If both parties are professionals, the competent court is typically the Commercial Court. When one party is not a professional, the competent courts are the Tribunals of First Instance (Tribunal d'instance or Tribunal de grande instance depending on the amount of the claim). In certain cases, administrative courts may also be competent.

 
34. Are arbitration clauses in insurance and reinsurance agreements enforceable?

Arbitration has traditionally been the most frequently used mechanism to resolve disputes between insurers and reinsurers or between reinsurers. In 1995, several companies decided to create an insurance and reinsurance arbitration centre (Centre Français d'Arbitrage de Réassurance et d'Assurance) (CEFAREA) to promote arbitration, by proposing:

  • Rules on the conduct and procedure of the arbitration.

  • A comprehensive list of arbitrators.

  • Model arbitration clauses.

In 2008, CEFAREA joined the Paris Centre for Mediation and Arbitration (Centre de Médiation et d'Arbitrage de Paris) (CMAP) to benefit from CMAP's administrative structure, while remaining dedicated to reinsurance disputes.

In consumer insurance contracts, any clause that imposes arbitration, or more generally that restricts the consumer's ability to initiate legal action, is deemed to be an unfair contract term (Article R. 132-1, Consumer Code).

 
35. Are choice of forum, venue and applicable law clauses in an insurance or reinsurance contract recognised and enforced in your jurisdiction?

Applicable law clauses are subject to the provisions of the Rome I Regulation (see Question 4, Choice of law).

Choice of forum clauses are subject to Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation), which provides that in matters relating to insurance, an insurer may be sued in the courts of the EU country where it has its head office where the claimant is domiciled, if the action is brought by the policyholder, the insured or a beneficiary. In respect of liability insurance or insurance of immovable property, the insurer may, in addition, be sued in the courts for the place where the harmful event occurred.

 

Reform

36. What proposals are there for reform of the law, regulation or rules in your jurisdiction relating to the provision of insurance or reinsurance services?

Several proposals for legal reform are being discussed:

  • Tax reforms. There have been several initiatives increasing tax and other levies on insurance, including life assurance and health insurance, while further reforms of the tax treatment of insurance are likely.

  • Test-Achats case. On 1 March 2011, in the Test-Achats case (case C-236/09 Association Belge des Consommateurs Test-Achats ASBL), the Court of Justice of the European Union ruled that differentiation in insurance premiums and benefits based on gender would be unlawful as of 21 December 2012. As in most EU member states, this will require a modification of domestic law. A certain number of uncertainties remain, such as how the prohibition of differentiation based on gender will apply to existing business. Indeed, French case law treats the tacit renewal of an insurance contract as creating a new contract.

  • Solvency II. Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) sets out new standards for solvency margins of insurance companies and reinforces the regulation of the insurance sector. It is to be completed by further implementing measures. Solvency II will have a significant impact on the legislative and regulatory framework applicable to insurers and reinsurers in France.

 

Main insurance/reinsurance trade organisations

French Federation of Insurance Companies (Fédération Française des Sociétés d'Assurance) (FFSA)

Main activities. The FFSA is the leading trade organisation in the insurance sector. It represents 90% of the insurance market. Its role is to represent the interests of this business sector and to facilitate co-operation and consultation with business partners. The FFSA also has an important advisory role through recommendations of other publications.

W www.ffsa.fr

Insurance Mutual Undertakings Group (Groupement des Entreprises Mutuelles d'Assurances) (GEMA)

Main activities. GEMA is the trade organisation of insurance mutuals and their subsidiaries. Apart from its representative role of 47 entities, it also carries out studies on the evolution of insurance.

W www.gema.fr/index.php

Group of Mutual Insurance Organisations (Réunion des Organisations d'Assurance Mutuelle) (ROAM)

Main activities. ROAM is a trade organisation representing the interests of 46 mutual insurance companies which are subject to the French Insurance Code.

National Federation of French Mutuals (Fédération Nationale de la Mutualité Française) (FNMF)

Main activities. The FNMF represents most French health mutuals. Apart from a representative role of mutuals, the FNMF also supervises more than 2,000 health facilities.

W www.mutualite.fr

Association of French Reinsurance Professionals (Association des Professionnels de la Réassurance en France) (APREF)

Main activities. This is the main trade organisation of reinsurers. It focuses on the study of reinsurance issues and serves as a discussion platform.

W www.apref.org


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