62002CC0346_EN
Opinion of the Advocate-General
Opinion of the Advocate-General
I – Introduction
1. In the present Treaty infringement proceedings, the Commission contests national provisions which require the incorporation into motor-vehicle insurance contracts of systems linking insurance premiums with claims records. It contends that such a requirement infringes the principle of freedom to set premium rates.
2. Both Luxembourg and French law provide that contracts for compulsory insurance covering third-party liability arising from the use of motor vehicles must contain a system laid down by law for adjusting insurance premiums according to the incidence of accident claims. The Commission, relying upon Directive 92/49/EEC, (2) sees therein an infringement of the freedom to set premium rates – which, it argues, results from the abolition of the supervisory authorities’ prior control of policy rates and conditions – because such mandatory systems have a direct impact on the premium rates offered.
3. The Commission bases its argument in particular on the judgment of the Court in Commission
v Italy, (3) which expressly recognised the principle of freedom to set rates. It must therefore, above all, be resolved whether the principle of freedom to set rates which the Court derived from Articles 6, 29 and 39 of Directive 92/49 directly precludes national provisions such as those at issue here or whether they are instead amenable to a review of their proportionality based on reasons relating to the general interest.
II – Legal framework
Community law
4. The fifth recital in the preamble to Directive 92/49 states:
‘… the approach adopted consists in bringing about such harmonisation as is essential, necessary and sufficient to achieve the mutual recognition of authorisations and prudential control systems, thereby making it possible to grant a single authorisation valid throughout the Community and apply the principle of supervision by the home Member State’.
5. The 19th recital in the preamble to Directive 92/49 states:
‘… it is for the Member State in which the risk is situated to ensure that there is nothing to prevent the marketing within its territory of all the insurance products offered for sale in the Community as long as they do not conflict with the legal provisions protecting the general good in force in the Member State in which the risk is situated, and in so far as the general good is not safeguarded by the rules of the home Member State, provided that such provisions must be applied without discrimination to all undertakings operating in that Member State and be objectively necessary and in proportion to the objective pursued’.
6. Article 1 of Directive 92/49 provides:
‘For the purposes of this Directive:
...
(c) home Member State shall mean the Member State in which the head office of the insurance undertaking covering a risk is situated;
...’
7. In Title II, headed ‘The taking up of the business of insurance’, Article 6 provides:
‘Article 8 of Directive 73/239/EEC shall be replaced by the following:
“Article 8
...
3. Nothing in this Directive shall prevent Member States from maintaining in force or introducing laws, regulations or administrative provisions requiring approval of the memorandum and articles of association and communication of any other documents necessary for the normal exercise of supervision.
Member States shall not, however, adopt provisions requiring the prior approval or systematic notification of general and special policy conditions, scales of premiums and forms and other printed documents which an undertaking intends to use in its dealings with policyholders.
Member States may not retain or introduce prior notification or approval of proposed increases in premium rates except as part of general price-control systems.
...”’.
8. Article 28 of Directive 92/49, which appears in Title III headed ‘Harmonisation of the conditions governing the business of insurance’, states:
‘The Member State in which a risk is situated shall not prevent a policyholder from concluding a contract with an insurance undertaking authorised under the conditions of Article 6 of Directive 73/239/EEC, as long as that does not conflict with legal provisions protecting the general good in the Member State in which the risk is situated.’
9. Again in Title III, Article 29 provides as follows:
‘Member States shall not adopt provisions requiring the prior approval or systematic notification of general and special policy conditions, scales of premiums, or forms and other printed documents which an insurance undertaking intends to use in its dealings with policy-holders. They may only require non-systematic notification of those policy conditions and other documents for the purpose of verifying compliance with national provisions concerning insurance contracts, and that requirement may not constitute a prior condition for an undertaking’s carrying on its business.
Member States may not retain or introduce prior notification or approval of proposed increases in premium rates except as part of general price-control systems.’
10. Article 30(2) of Directive 92/49, which also appears in Title III, provides:
‘Notwithstanding any provision to the contrary, a Member State which makes insurance compulsory may require that the general and special conditions of the compulsory insurance be communicated to its competent authority before being circulated.’
11. In Title IV of Directive 92/49, headed ‘Provisions relating to right of establishment and the freedom to provide services’, Article 39(2) and (3) provides:
‘2.
The Member State of the branch or of the provision of services shall not adopt provisions requiring the prior approval or systematic notification of general and special policy conditions, scales of premiums, or forms and other printed documents which an undertaking intends to use in its dealings with policyholders. It may only require an undertaking that proposes to carry on insurance business within its territory, under the right of establishment or the freedom to provide services, to effect non-systematic notification of those policy conditions and other documents for the purpose of verifying compliance with its national provisions concerning insurance contracts, and that requirement may not constitute a prior condition for an undertaking’s carrying on its business.
3. The Member State of the branch or of the provision of services may not retain or introduce prior notification or approval of proposed increases in premium rates except as part of general price-control systems.’
National law – Luxembourg
12. The Grand-Ducal Regulation of 20 December 1994 adopted in implementation of Article 17(2) and (3) of the Law of 7 April 1976 as amended relating to insurance for third-party liability arising from the use of motor vehicles and laying down the conditions which contracts for third-party motor-vehicle insurance must meet (4) introduces, in particular, a system under which premiums are reduced following several years without accident claims and increased as a result of accident claims (hereinafter ‘ bonus-malus
system’). Under Article 3 of that regulation, clauses which provide otherwise are prohibited.
13. Under Article 7 of the regulation, the bonus-malus
system applies to all contracts for third-party liability insurance concluded by natural persons for motor vehicles usually kept in the Grand Duchy of Luxembourg. Accordingly, the bonus-malus
system does not apply to contracts for comprehensive insurance in respect of motor vehicles or for legal expenses insurance in respect of motor vehicles concluded by natural persons, or to any type of motor-vehicle insurance contract concluded by legal persons.
14. Under the bonus-malus
system each new policyholder is placed on point 11 of the bonus-malus
scale, corresponding to a bonus of 0%. If no accident claim is made during the reference period, which is usually one year, the policyholder moves down the scale by one point – until the minimum point of -3 is reached. At that point on the scale the policyholder has to pay only 45% of the reference premium. On the other hand, every accident claim leads to a movement up the scale by three points, the maximum point of the scale being reached at point 22, corresponding to 250% of the reference premium.
15. For the purposes of that system, only those accident claims which involve a payment by the insurer to an injured third party are taken into account. Thus there is no movement up the scale if the amount of the claim of the injured third party is lower than any policy excess, if applicable, or if the policyholder reimburses to the insurer the amounts paid out within four months of being notified of the payment.
National law – France
16. In France the Minister for Economic Affairs and Finance is empowered by Article L.111-4 of the Insurance Code (5) to require the incorporation of standard terms into insurance contracts. The Minister made use of that power in relation to the ‘ bonus-malus
clause’ (6) for motor-vehicle insurance: Article A.121-1 of the Insurance Code essentially provides that contracts for third-party liability insurance arising from the use of motor vehicles are required to contain a bonus-malus
clause in accordance with the annex thereto (hereinafter also ‘ bonus-malus
system’).
17. Under the clause provided for by Article A.121-1 of the Insurance Code, the insurer sets a reference premium. The actual premium payable by the policyholder is calculated by multiplying that reference premium by a coefficient reducing or increasing it, fixed according to the claims record. Under this mandatory clause the value of that coefficient lies between 0.5 and 3.5; every accident claim – with the exception of the first claim after a three-year accident-free period where the coefficient is at 0.5 – leads to an increase in the coefficient of 25% whilst the absence of accident claims during the one-year reference period results in a reduction of the coefficient by 5%.
18. As a result of the fiction of incorporation under Article L.111-4 of the French Insurance Code, any derogating or contradictory terms are treated as if they had not been set out in the contract. (7)
III – Facts, preliminary procedure and court proceedings
19. Since the Commission considered that the provisions in force in Luxembourg and France concerning motor-vehicle insurance – more especially the requirement contained therein to incorporate systems linking insurance premiums with claims records into contracts for third-party liability insurance arising from the use of motor vehicles – infringed the principle of freedom to set rates arising in its view from Directive 92/49, it sent the French Government on 7 July 1997 and the Luxembourg Government on 25 July 2001 letters of formal notice calling upon them to submit observations within two months.
20. The letters by way of reply from the French Government of 23 October 1997 and 31 July 1998 (8) did not allay the Commission’s suspicion of a Treaty infringement.
The Commission then sent to the French Republic by letter of 20 April 2001 and to the Grand Duchy of Luxembourg by letter of 20 December 2001 reasoned opinions complaining of an infringement of Directive 92/49 and calling upon those Member States to adopt the measures necessary in each case within two months. The French Government replied by letter of 18 July 2001 and the Luxembourg Government by letter of 6 March 2002.
21. Considering that neither the French Republic nor the Grand Duchy of Luxembourg had fulfilled their obligations, the Commission, by applications of 30 September 2002, lodged at the Court Registry on the same day, brought proceedings under Article 226 EC against both the French Republic and the Grand Duchy of Luxembourg.
22. In Case C-346/02 concerning the Grand Duchy of Luxembourg, the Commission claims that the Court should:
– declare that, by introducing and maintaining in force a bonus-malus
system which has automatic and compulsory effects on premium rates and applies to all motor insurance contracts concluded on Luxembourg territory by natural persons without any distinction being drawn between insurance companies having their head office in the Grand Duchy of Luxembourg and insurance undertakings operating there through a branch office or by the provision of services, contrary to the principle of freedom to set rates and of elimination of prior or systematic controls on scales of premiums and contracts which is established by Articles 6(3), 29 and 39 of Directive 92/49/EEC, the Grand Duchy of Luxembourg has failed to fulfil its obligations under that directive;
– order the Grand Duchy of Luxembourg to pay the costs.
23. In Case C-347/02 concerning the French Republic, the Commission claims that the Court should:
– declare that, by introducing and maintaining in force a bonus-malus
system which has automatic and compulsory effects on premium rates and applies to all motor insurance contracts concluded on French territory without any distinction being drawn between insurance companies having their head office in France and insurance undertakings operating there through a branch office or by the provision of services, contrary to the principle of freedom to set rates and of elimination of prior or systematic controls on scales of premiums and contracts which is established by Articles 6(3), 29 and 39 of Directive 92/49/EEC, the French Republic has failed to fulfil its obligations under that directive;
– order the French Republic to pay the costs.
IV – Legal appraisal
A – Introductory remarks concerning the approach adopted
24. Since the complaints of the Commission and the arguments of the Member States are essentially the same in both cases, I should like to undertake a joint appraisal. Only in so far as the complaints and arguments relate to circumstances specific to the Member State concerned does a separate appraisal appear to be necessary.
25. In the Commission’s view, the Luxembourg and French provisions both equally infringe Directive 92/49 because the requirement to take claims records into accoun t as provided for by the respective systems which link premiums to accident claims has automatic and compulsory effects on premium rates in each case. That infringes the principle of freedom to set rates resulting from Directive 92/49. On the other hand, both the Luxembourg and the French Governments emphasise that their respective national provisions do not infringe the principle of freedom to set rates if only because insurers can still freely set their (basic) rates. In their view, the national provisions are, however, in any event justified by overriding reasons relating to the general interest. The Commission on the other hand does not consider there to be room for such justification since the directive exhaustively governs the principle of freedom to set rates.
26. In the light of the foregoing it must be concluded that the present cases essentially raise three questions of law. First, the scope of the principle of freedom to set rates appears to require examination. Only in that way can it be established whether the directive contains an exhaustive set of rules relating to provisions for setting premium rates, with the consequence that any more far-reaching national rules cannot be justified by overriding reasons relating to the general interest.
27. Should it emerge that the principle of freedom to set rates does not as a matter of principle preclude a bonus-malus
system such as those at issue here, it would in addition be necessary to examine the extent to which the rules of national law concerned limit the fundamental freedoms enshrined in primary law and implemented for the insurance sector by Directive 92/49 in particular.
28. Finally, it would have to be examined whether the justifications put forward by the defendant Member States can be accepted and withstand a test of their proportionality.
B – The principle of freedom to set rates
1.
Source of the principle of freedom to set rates
(a) Subject-matter of Directive 92/49
29. Directive 92/49 completed the creation of an internal market for non-life insurance initiated by the first two generations of directives. (9) The aim of that framework was to encourage market integration whilst guaranteeing policyholders adequate protection. (10)
30. To achieve that aim the Community legislature considered it necessary to set by means of Community legal measures the conditions for carrying on the business of insurance within the internal market. That took place through the adoption of a common framework harmonising the essential principles of law concerning the supervision of insurance. The core of that framework is the concentration of supervisory competence in the home Member State. (11) This system of supervision enables insurance undertakings to commence business in every other Member State pursuant to the principle of freedom of establishment or freedom to provide services.
31. Control of the solvency of insurance undertakings – later also insurance groups (12) and financial conglomerates (13) – thereby took priority whilst there was initially no control of insurance mediation activities (14) and control of products and premiums, if any, was limited to a general supervision of impropriety. (15) The single licence system implies the abolition of prior control of policy conditions and premiums. (16)
32. It must also be emphasised that the Community law framework applicable here entails a particularly narrow form of harmonisation. The third generation of directives was intended above all to coordinate national systems of supervision; harmonisation of the law concerning supervision correspondingly took place only to the extent that it was considered necessary for the creation of a single market. (17) The law of insurance contracts was only marginally affected by those developments: (18) Community law requirements exist only regarding conflict rules and the duty to provide information when concluding an insurance contract.
33. It follows from the foregoing that the freedom to set premium rates has its roots in the elimination of prior control of insurance policy terms and premium rates. It also appears significant that Directive 92/49 did not undertake a comprehensive harmonisation of all provisions which might be relevant to setting premium rates. It must equally be emphasised that, in addition to the elimination of prior control of policy conditions and rates, Directive 92/49 aims to secure freedom to market insurance products within the Community. (19) The 19th recital in its preamble states in this connection that ‘... within the framework of an internal market it is in the policyholder’s interest that he should have access to the widest possible range of insurance products available in the Community so that he can choose that which is best suited to his needs’. It must be observed as regards the bonus-malus
systems at issue here that the determination by law of the relevance of claims records for the purposes of setting premiums in the form of a rigid system of premium discounts or premium adjustments is necessarily accompanied by a reduction in product choice, since insurance undertakings cannot offer their own such models.
(b) Judgment in Case C-59/01 ( Commission
v Italy )
34. In that case (20) the Commission had contested national rate-freezing rules applicable to all contracts of insurance in respect of third-party liability arising from the use of motor vehicles in relation to risks situated within Italian territory without distinguishing between Italian insurance companies and those carrying on business in Italy through branch offices or under the freedom to provide services.
35. The Italian Government had admitted restricting the freedom of insurance undertakings to set rates, but relied upon the derogation in favour of measures forming part of a general price-control system provided for by the third subparagraph of Article 8(3) of the First Directive 73/239/EEC. (21)
36. In paragraph 28 of its judgment the Court recalled that ‘under the third subparagraph of Article 8(3) of Directive 73/239, the second paragraph of Article 29 and Article 39(3) of Directive 92/49 the Member States may not retain or introduce prior notification or approval of proposed increases in premium rates except as part of general price-control systems’.
37. According to the Court, ‘it is apparent that the Community legislature clearly meant to secure the principle of freedom to set rates in the non-life insurance sector, including the area of compulsory insurance such as insurance covering third-party liability arising from the use of motor vehicles. That principle implies the prohibition of any system of prior or systematic notification or approval of the rates which an undertaking intends to use in its dealings with policy-holders.’ (22)
38. With regard to permissible derogations the Court explained that ‘the only derogation from that principle allowed by Directive 92/49 concerns prior notification and approval of “increases in premium rates” in the framework of a “general price-control system”’. (23)
The Court continued: ‘It is true that Article 28 of Directive 92/49 permits the Member State in which the risk is situated to prevent a policy-holder from concluding a contract with an insurance undertaking where that would conflict with legal provisions protecting the general good in force in that State.
Nevertheless, that provision cannot in any circumstances be so interpreted as to negate the effectiveness of the provisions mentioned in paragraph 28 above, which expressly set out the grounds justifying derogation from the principle that undertakings should be free to set rates. That conclusion is supported by the fact that Article 28 of Directive 92/49 comes immediately before a provision in the same Chapter explicitly repeating that the Member States are prohibited from restricting the freedom to fix rates except as part of general price-control systems.’ (24)
39. In that judgment the Court explicitly recognised the principle of freedom to set rates. In so doing it was evidently guided by the connection between the elimination of prior control and the freedom to set rates. Given, however, that in Case C-59/01 the restriction on the freedom to set rates was uncontested, the question remains as to the scope of that principle. In the present cases it is indeed questionable whether the principle of freedom to set rates is at all affected.
2. Scope of the principle of freedom to set rates
(a) Main arguments of the parties
40. The Commission
argues that the bonus-malus
systems at issue infringe the principle of freedom to set rates. Relying upon the judgments in Case C-296/98 (25) and Case C-59/01, (26) it derives that principle from the elimination of prior control of policy conditions and rates and from the directive’s aim of freedom to market insurance products within the Community.
41. It contends that that principle precludes national rules under which certain events during the life of an insurance contract must have obligatory effects, to the extent prescribed by law, on the amount of the premium rates. The Commission emphasises, however, that it does not contest that it is open to Member States to establish a scale which takes the accident record of policyholders into account or even to apply a uniform system linking insurance premiums with accident claims. Accordingly, it would consider unproblematic a classification based upon the incidence of claims without prescribed coefficients increasing or reducing the premiums since that would allow insurance undertakings freely to assess the financial consequences of individual factors, such as, for example, the number of accidents, the seriousness of the damage caused or a lack of aptitude.
42. The Luxembourg Government
on the other hand takes the view that the principle of freedom to set rates precludes a prior or systematic duty to notify or seek approval of premium rates. The Luxembourg bonus-malus
system does not entail such a duty and accordingly the possibility of that principle being affected can be excluded. The Luxembourg Government emphasises that insurance premiums can be freely determined within the Grand Duchy. Only their adjustment according to claims records is affected by the contested legislative provisions. The bonus-malus
system therefore concerns only a component of premium rates, thus precluding also any interference with competition as to premium rates.
43. The argument of the French Government
essentially corresponds to the Luxembourg argument. It warns against treating the principle of freedom to set rates as absolute. In any event, Articles 6, 29 and 39 of Directive 92/49 are to be interpreted in light of Article 28 of that directive.
44. The French Government relies in addition upon the judgments in Commission
v Italy (27) and in Cullet, (28) whose approach can be applied to the present case.
(b) Appraisal
45. The dispute as to the principle of freedom to set rates is in reality less concerned with whether the principle operates than with the permissible derogations from it. If one assumes that Directive 92/49, in addition to the elimination of prior control of policy conditions and premium rates, provides for a general freedom to set premium rates, it follows that the directive’s rules are exhaustive in this regard – with the consequence that only those derogations from that principle which are expressly provided for in the directive itself are permitted. If one, however, assumes that the scope of the principle of freedom to set rates is limited, it must be examined to what extent national rules relevant to rate setting may be justified by overriding reasons relating to the general interest.
46. It must be observed at the outset that the judgment in Case C‑59/01 (29) did not conclusively resolve that question, since it was uncontested that the legislation at issue there was in any event to be regarded as a restriction on the freedom to set rates.
47. The French Government is not wrong to point out that Directive 92/49 does not expressly mention the principle of freedom to set rates. The derogation provided for by the third subparagraph of Article 8(3) of Directive 73/239 as inserted by Directive 92/49 is not in relation to the freedom to set premium rates in general, but (only) to any mechanisms of prior control or systematic duties of notification.
48. However, to the extent that the principle of freedom to set rates is an expression of the elimination of prior control of rates and of any systematic duties of notification, following the judgment in Case C‑59/01 the fact that it operates is clear. It remains questionable only whether that principle also precludes national rules which, whilst affecting the setting of premium rates by insurance undertakings – for example, as in the present case, by provisions concerning individual elements of the premium – nevertheless cannot be equated with prior control of scales of premiums or with a systematic duty to notify.
49. In this context, reference to the freedom to market insurance products in the Community, an objective of Directive 92/49, appears to be of little assistance. That freedom to market is without prejudice to Article 28 of Directive 92/49, that is to say, without prejudice to the application of legal provisions protecting the general good in the Member State in which the risk is situated (as opposed to the ‘home Member State’ within the meaning of Article 1(c) of Directive 92/49). Directive 92/49 thereby admits generally the grounds justifying a restriction on the fundamental freedoms laid down in the Treaty. (30)
50. However, recourse cannot be had to Article 28 of the directive in so far as it is assumed that the directive harmonises all provisions affecting premium rates. (31) It follows from a widening of the scope of the principle of freedom to set premium rates – in accordance with the interpretation preferred by the Commission – that the freedom to set rates goes beyond its core component (the elimination of prior control of scales of premiums and exclusion of systematic duties of notification) and precludes every national rule affecting premium rates. The Commission is therefore consistent in claiming that the solution in the judgment in Case C-59/01 should be applied to the present cases: only a general price-control system may be used to justify derogations from the pri nciple of freedom to set rates in its wider sense; Article 28 cannot deprive that pairing of rule and exception of its practical effectiveness.
51. Nevertheless it is questionable whether a broad notion of the freedom to set premium rates – and thus of the area harmonised by the directive – is convincing.
52. It is necessary to caution against over-extending the principle of freedom to set rates since that would fail to take sufficient account of both the wording and the scheme of Directive 92/49 and in addition could lead to serious conflicts of assessment and problems of delimitation.
53. First, it is not evident from the wording or the scheme of Directive 92/49 that the Community legislature wanted, in addition to the elimination of prior control of policy conditions and rates and the abolition of any systematic duties of notification, to secure absolute freedom to set premium rates so that national provisions affecting premium rates would as a matter of principle be unlawful. (32)
54. In that connection, it must be remembered that insurance as such is purely a creation of law with the consequence that every restriction on the freedom of contract – whether it be by setting a minimum level of cover or by prohibiting certain terms which inter alia set the extent of cover – affects the product itself and correspondingly has – even if only indirectly – implications for the premium. The adoption of a broad notion of the freedom to set premium rates requires, however, a distinction to be drawn, which in practical terms is difficult and from an actuarial point of view is unsound, between those provisions which primarily concern contract terms – and as such have an effect on premium rates which can be determined only with difficulty (33) – and those which affect premium rates because they regulate a premium component. Bonus-malus
systems, in particular, probably fall, however, into both categories.
55. At the same time it can be observed that in the field of insurance the freedom to set premium rates is closely connected to the freedom of contract. However, the Commission has never argued that freedom of contract is to be interpreted as prohibiting as a matter of principle every restriction – for example, in the form of national law on insurance contracts – on contractual freedom. Rather, it is generally acknowledged that any restrictions on the freedom to market insurance products arising from national provisions adopted for the protection of policyholders can be justified to the extent that those provisions are provisions in the general interest.
56. Finally, the absolute freedom to set premium rates argued for by the Commission is also unconvincing because in a different context – on the basis of other values – it itself seeks the regulation of certain elements used in calculating premiums: reference will be made here only to its initiative to exclude certain – sex-specific – elements. (34)
3. Interim conclusion
57. The principle of freedom to set rates under Articles 6, 29 and 39 of Directive 92/49 does not preclude national legislation such as that at issue in Case C-346/02 and Case C-347/02 respectively.
58. It remains nevertheless to be examined whether the Commission has been able to identify other relevant obstacles to the aim of creating a single market in insurance that result from the national rules in question.
C –
Bonus-malus systems with compulsory and automatic effects on premium rates as obstacles to the creation of a single market in insurance
1.
Main arguments of the parties
59. According to the view confirmed by the French Government
in its defence, given the non-applicability of the freedom to set premium rates the bonus-malus
system is to be assessed by reference to the freedom to provide services under Article 49 EC.
60. The Luxembourg Government also, making reference to the fifth recital in the preamble to Directive 92/49, argued that the harmonisation resulting from that directive is incomplete and is essentially limited to aspects concerning supervision. It follows that insurance premiums are not the object of harmonisation, so that the Grand Duchy may for reasons relating to the general interest retain its bonus-malus
system currently in force. That view is supported by Article 28 of the directive and by the 19th recital in its preamble.
61. The Commission
did not respond expressly to those arguments of the French and Luxembourg Governments. However, it can probably be deduced from its observations that, if the Court were to find that there is no harmonisation in respect of bonus-malus
systems, justification for any restrictions of the fundamental freedoms laid down in the Treaty and implemented by Directive 92/49 should be assessed under Article 28 of Directive 92/49.
2. Appraisal
62. It must be observed at the outset that the position of the French Government appears to be in any event inconclusive. If the Court should hold that bonus-malus
systems are not covered by the partial harmonisation of insurance law aimed for by the directive, it could not in any event assess the bonus-malus
systems at issue according to the requirements of primary law, since the Commission has not sought such a finding. In accordance with the consistent case-law of the Court (35) the Commission’s application would therefore have to be dismissed.
63. Besides, bonus-malus
systems affect not only the freedom to provide services but also – and above all (36) – the freedom of establishment under Article 43 EC.
(a) The freedom to market insurance products as the expression through secondary law of freedom of establishment and freedom to provide services
64. Since Directive 92/49 aims to complete the internal market in the insurance sector, it ensures implementation in that sector of the fundamental freedoms laid down in the Treaty, that is to say freedom of establishment and freedom to provide services, and thus helps to safeguard them.
65. The Member States affected do not deny that their respective bonus-malus
systems restrict the freedom to market insurance products – here contracts for compulsory third-party liability insurance in respect of motor vehicles – in that they force domestic offices of insurance companies whose head office is in another Member State or foreign companies which offer their products under the freedom to provide services to make the necessary changes to their conditions and premium rates. (37)
66. The fact that secondary Community law has not fully harmonised the legal provisions concerning premium rates does not at all exclude an infringement of the principle of the freedom to market. That is important when considering the lawfulness of derogations.
(b) Conclusion as to the relevant test
67. In addition to guaranteeing freedom to set premium rates by eliminating prior control of scales of premiums and excluding any duties of systematic notification – a matter not in question here – Directive 92/49 ensures the freedom to market insurance products. The Commission therefore, in assessing whether the bonus-malus
systems at issue in this case infringe Community law, has correctly applied the test of Directive 92/49.
68. In so far as those systems restrict the freedom to market insurance products within the Community, they therefore clearly infringe Directive 92/49 unless they are to be regarded as ‘legal provisions protecting the general good’ within the meaning of Article 28 of Directive 92/49.
D – Justification on grounds relating to the general interest
1.
Main arguments of the parties
69. Both the Luxembourg
and the French Governments
consider the bonus-malus
systems at issue to be legal provisions protecting the general good.
70. The Commission, consistent with its view that there is no possibility of justification, considers this point in the alternative only.
(a) Main arguments in Case C-346/02
71. The Luxembourg Government
relies in particular on the judgment in Case C-294/00 (38) and states that national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty can be justified only if they fulfil four conditions: they must be applied in a non-discriminatory manner; they must be justified by overriding reasons based on the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain that objective.
72. In its view, the Luxembourg bonus-malus
system fulfils those conditions. It is applied in a non-discriminatory manner. Reasons relating to the general interest are consumer protection, as recognised by the Court, (39) and road safety, also recognised by the Court. (40)
73. It argues that the bonus-malus
system contributes to consumer protection by encouraging premium rate transparency and by limiting the scope for premium increases on grounds of claims records or driver inexperience. Since the system enables claims records to be taken into account, that additionally creates an incentive to drive carefully and responsibly.
74. Nor does the system in question go beyond what is necessary in order to achieve those objectives: it applies only to natural persons and permits insurance companies complete freedom to set the basic premium according to their own calculations.
75. The Commission
takes the view that the objectives advanced can be achieved by less far-reaching measures, in particular abandoning statutory determination of the effect on premium rates that results from placement at a particular point on the scale in accordance with the claims record. Furthermore, the suitability of the system for encouraging road safety is doubtful, since it is applicable only to a limited group of persons and does not take all accidents into account.
(b) Main arguments in Case C-347/02
76. The French Government
relies on the judgment in Case C-398/95 (41) and recalls that the freedom to provide services may be limited only by rules which are justified by overriding reasons relating to the general interest and which apply to all persons or undertakings pursuing an activity in the State of destination. In particular, the restrictions must be suitable for securing the attainment of the objective which they pursue and they must not go beyond what is necessary in order to attain it.
77. It points out that the French bonus-malus
system is applicable to all companies pursuing their activities in France. Consumer protection and road safety are possible reasons relating to the general interest. (42)
78. In respect of consumer protection the French Government emphasises the reduced variation in premium rates resulting from the system, which in turn has a positive effect on rate increases and reduces the risk of uninsured drivers. Moreover a certain transparency of premium rates can be observed.
79. As regards road safety, the French Government has produced before the Court studies which demonstrate that taking claims records into account as an element of premium-setting has an overall positive effect on the behaviour of insured drivers.
80. It argues that there are no less far-reaching measures since the positive effects of the system in terms of consumer protection and road safety result precisely from its compulsory nature.
81. The Commission
takes essentially the same view here as it does in response to the arguments of the Luxembourg Government in Case C-346/02.
2.
Appraisal
82. In so far as the arguments of both Member States contain similarities, it appears appropriate to make use of cross-references in order to avoid repetition. However, for the remainder, an individual examination of the respective bonus-malus
systems is indispensable in order to take their particular features into account.
83. Justification of the – acknowledged – restrictions on the freedom to market insurance products within the Community (43) resulting from the bonus-malus
systems at issue presupposes that they are applied in a non-discriminatory manner; furthermore, they must be justified by overriding reasons based on the general interest, they must be suitable for securing the attainment of the objectives which they pursue and they must not go beyond what is necessary in order to attain those objectives. It must also be ensured that the systems at issue do not duplicate equivalent provisions in the home Member State. (44)
(a) Transparency of premium rates and consumer protection
84. It is not contested that consumer protection ranks as a reason relating to the general interest which can justify restrictions of the fundamental freedoms. (45) The Commission has also not called into doubt that both the systems in question concern indistinctly applicable measures.
(i) Case C-346/0 2
85. The observations of the Luxembourg Government regarding the suitability and appropriateness of the national bonus-malus
system in pursuing consumer-protection objectives appear to have little validity.
86. The argument relating to the transparency of premium rates contradicts the observations of the Luxembourg Government with regard to the freedom to set rates which – in its view – prevails in principle in the Grand Duchy. If insurance premiums can in principle be freely set by insurance companies operating in the Grand Duchy and the bonus-malus
system concerns merely a single component relevant for rate-setting, it is not obvious to what extent that system affects the transparency of insurance premiums. In other words, setting uniform coefficients which take account of accident rates and applying them to the ‘reference premium’ has no impact on any comparability of that reference premium with the premiums of other providers.
87. The argument concerning limitation of premium variation is also unconvincing for several reasons.
88. In so far as bonus-malus
systems, by fixing a maximum coefficient, place limits on the extent to which a high accident-claim rate, or inexperience, of particular policyholders can be taken into account, they certainly contribute towards ensuring the availability of insurance which does not deter such drivers from taking out a policy on financial grounds. However, as the Commission has already observed, it does not appear to be empirically proven that the abolition of compulsory scales taking claims records into account would lead to an increase in the number of uninsured drivers. Further, as the Commission states, the permissible range of coefficients from 0.5 to 2.5 renders it possible for premiums to vary in the relation of one through to five and thus allows for considerable variation such that the guarantee of ‘affordable’ insurance premiums appears to be somewhat hypothetical.
89. Moreover, protection against uninsured drivers constitutes a matter covered by the directives on motor vehicle insurance (46) such that unilateral national initiatives in that area in particular would also appear in principle not to be without their problems.
90. In so far as it is argued that bonus-malus
systems, by setting a minimum coefficient, limit the no-claims discount offered to good drivers, in order to provide for solidarity between policyholders, it suffices to remark that even in the absence of bonus-malus
systems of the type at issue here it is open to the supervisory authorities, within the scope of their power to control abusive behaviour, to take action against excessive discounts which could in certain circumstances jeopardise insurance companies’ continuing ability to meet their claims liabilities.
(ii) Case C-347/02
91. The observations concerning the structure of the Luxembourg bonus-malus
system are wholly applicable to that of the French bonus-malus
system, subject however to the caveat that the permissible range of coefficients from 0.5 to 3.5 under the French system renders it possible for premiums to vary in the relation of one through to seven.
(b) Road safety
92. Encouraging road safety constitutes a recognised reason relating to the general interest. (47) It is questionable whether the bonus-malus
systems at issue pursue that aim in accordance with the principle of proportionality.
(i) Case C-346/02
93. The aptness of the Luxembourg bonus-malus
system to encourage road safety appears doubtful in two respects.
94. First, the field of application of the Luxembourg system is restricted to natural persons. If, however, one considers the substantial importance of leasing in the Grand Duchy (48) it must be concluded that the Luxembourg bonus-malus
system does not apply to a considerable proportion of road users.
95. Second, under the Luxembourg system placement on the premium scale is tied to the relevant vehicle. Whilst that placement is transferable to replacement vehicles, it cannot be transferred on the purchase of a second car. It is not evident why an insured driver should be placed at different points on the scale depending on which vehicle he uses, especially as that difference in placement does not result from the statistically proven ‘accident probability’ of the particular vehicle.
96. In so far as a Member State wishes to contribute to road safety through the insurance premium structure, systems are conceivable under which any deduction of points in a points-based driving licence system — like those in force both in Luxembourg and in France – is reflected in the setting of premiums and which would at the same time place fewer restrictions on product design and the freedom to set premiums, for example by not fixing in law the actual amount by which the premium is increased. It is possible that such systems would permit actual driver behaviour to be better taken into account.
(ii) Case C-347/02
97. The above observations can also be applied to the French system.
98. Moreover, the French Government has established in its arguments that taking claims records into account – in the form of a premium component – when calculating insurance premiums contributes to road safety in that insured drivers have a financial interest in the consequences of their conduct at the wheel. However, the phenomenon of moral hazard, under which the care taken by an insured person with compulsory third-party liability insurance decreases once the insurance has been taken out, is a general feature of compulsory third-party liability insurance such that there is always a need in actuarial terms to create suitable incentives in the form of exclusion clauses or policy excesses. The French Government, however, has not demonstrated that to counteract that moral hazard a statutory
system is required. Rather, it appears more likely that the market would, if only on actuarial grounds, offer suitable – equally effective – systems. (49)
99. Nor has the French Government been able to prove that the number of traffic accident victims is lower in Member States with bonus-malus
systems provided for by law than in Member States where such systems emerge as a matter of market practice or where legislative provisions do not affect premium structures. (50)
100. I therefore conclude that the bonus-malus
systems at issue bring about a restriction on the freedom to market insurance products in the Community which does not appear to be justified by reasons relating to the general interest.
V – Costs
101. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. As the Commission applied for the Grand Duchy of Luxembourg and the French Republic to pay the costs and they have been unsuccessful, they should be ordered to pay the costs.
VI – Conclusion
102. I therefore propose that the Court should rule as follows:
(1) In Case C-346/02
– by introducing and maintaining in force a bonus-malus
system which has automatic and compulsory effects on premium rates and applies to all motor insurance contracts covering third-party liability concluded on Luxembourg territory by natural persons without any distinction being drawn between insurance companies having their head office in the Grand Duchy of Luxembourg and insurance undertakings operating there through a branch office or by the provision of services, contrary to the principle of freedom to market insurance products in the Community which is established by Articles 6(3), 29 and 39 of Directive 92/49/EEC, the Grand Duchy of Luxembourg has failed to fulfil its obligations under that directive;
– the Grand Duchy of Luxembourg shall pay the costs.
(2) In Case C-347/02
– by introducing and maintaining in force a bonus-malus
system which has automatic and compulsory effects on premium rates and applies to all motor insurance contracts covering third-party liability concluded on French territory without any distinction being drawn between insurance companies having their head office in the French Republic and insurance undertakings operating there through a branch office or by the provision of services, contrary to the principle of freedom to market insurance products in the Community which is established by Articles 6(3), 29 and 39 of Directive 92/49/EEC, the French Republic has failed to fulfil its obligations under that directive;
– the French Republic shall pay the costs.
(1) .
(2)
–	Council Directive 92/49/EEC of 18 June 1992 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and amending Directives 73/239/EEC and 88/357/EEC (third non-life insurance Directive) (OJ 1992 L 228, p. 1).
(3)
–	Case C-59/01 Commission
v Italy
[2003] ECR I‑1759. On that judgment see Jean‑Marc Binon, ‘Assurance et responsabilité’, Chronique de droit européen, RGAR 2003, p. 13785, at point 8.
(4)
–	Mémorial A, 1994, p. 2776.
(5)
–	As amended by Law No 94-5 of 4 January 1994 (JORF of 5 January 1994). That Law inter alia implemented Directive 92/49 into French law.
(6)
–	‘Clause de réduction ou de majoration des primes ou cotisations’.
(7)
–	Judgment of the Court of Cassation, First Civil Chamber, of 20 March 1984, reproduced in RGAT 1984, p. 420, annotated by Bigot. In this connection, see also Bigot, Traité de droit des assurances, tome III: Le contrat d’assurance, Paris, 2002, point 343.
(8)
–	The Luxembourg Government did not reply to the Commission’s letter of formal notice.
(9)
–	In the field of non-life insurance the following directives must in particular be mentioned: First Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance (OJ 1973 L 228, p. 3), Council Directive 73/240/EEC of 24 July 1973 abolishing restrictions on freedom of establishment in the business of direct insurance other than life assurance (OJ 1973 L 228, p. 20), and Second Council Directive 88/357/EEC of 22 June 1988 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 73/239/EEC (OJ 1988 L 172, p. 1).
(10)
–	See in particular the third recital in the preamble to Directive 92/49.
(11)
–	The ‘single licence’ or ‘ passeport unique ’.
(12)
–	Directive 98/78/EC of the European Parliament and of the Council of 27 October 1998 on the supplementary supervision of insurance undertakings in an insurance group (OJ 1998 L 330, p. 1).
(13)
–	Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EEC and 2000/12/EC of the European Parliament and of the Council (OJ 2003 L 35, p. 1).
(14)
–	See, however, Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation (OJ 2003 L 9, p. 3).
(15)
–	See in particular the overview in Feyock, Jacobsen and Lemor, Kraftfahrtversicherung, 2nd edition, Munich, 2002, especially at point 143 et seq. and the further references cited.
(16)
–	Articles 6, 29 and 39 of Directive 92/49.
(17)
–	The fifth recital in the preamble to Directive 92/49 states: ‘… the approach adopted consists in bringing about such harmonisation as is essential, necessary and sufficient to achieve the mutual recognition of authorisations and prudential control systems, thereby making it possible to grant a single authorisation valid throughout the Community and apply the principle of supervision by the home Member State’.
(18)
–	The 18th recital in the preamble to Directive 92/49 states: ‘… the harmonisation of insurance contract law is not a prior condition for the achievement of the internal market in insurance’.
(19)
–	See, to this effect, the judgment in Case C-296/98 Commission
v France
[2000] ECR I-3025, paragraph 29: ‘Any obligation to notify such information is contrary to the freedom to market insurance products within the Community, which Directives 92/49 and 92/96 are designed to achieve.’
(20)
–	Cited in footnote 3.
(21)
–	As amended by Directive 92/49.
(22)
–	Judgment cited in footnote 3, paragraph 29.
(23)
–	Ibid., paragraph 29.
(24)
– Ibid., paragraphs 30 and 31.
(25)
–	Cited in footnote 19.
(26)
–	Cited in footnote 3.
(27)
–	Case 78/82 [1983] ECR 1955. In that judgment the Court found that the fixing of a compulsory trading margin for the marketing of tobacco products in the context of a State retail monopoly did not affect the freedom of producers to set the retail prices of their products.
(28)
–	Case 231/83 [1985] ECR 305.
(29)
–	Cited in footnote 3.
(30)
–	On the interpretation of that provision, see Commission Interpretative Communication: Freedom to provide services and the general good in the insurance sector (OJ 2000 C 43, p. 5). See also the comprehensive article by Dubuisson, ‘L’intérêt général en droit communautaire de l’assurance’, RGAT 1995, p. 809.
(31)
–	On the consequences of that, see above, point 45.
(32)
–	Prohibition by the directive of all national rules affecting premium rates could at best be derived from the explanatory memorandum to the proposal for the directive. See on this Dubuisson, cited in footnote 30, at point 42.
(33)
–	For example, the prohibition of an exclusion clause considered to be improper.
(34)
–	See the Commission proposal of 5 November 2003 for a Council Directive implementing the principle of equal treatment between women and men in the access to and supply of goods and services (COM (2003) 657 final).
(35)
–	See in particular Case C-145/01 Commission
v Italy
[2003] ECR I-5581, paragraph 17: ‘More specifically, the purpose of the letter of formal notice in the pre-litigation procedure is to delimit the subject-matter of the dispute and to indicate to the Member State, which is invited to submit its observations, the factors enabling it to prepare its defence.’
(36)
–	In practical terms, the marketing of contracts of insurance covering third-party liability arising from the use of motor vehicles within the scope of the freedom to provide services must be extremely rare.
(37)
–	The restriction on the freedom to market imposed by the French system is also made clear by the transfer of the power to prescribe standard clauses – Article L.111-4 of the Insurance Code, previously Article L.310-7 – from the supervisory to the contractual part of the Insurance Code. That transfer was designed to ensure that foreign providers – following the introduction of ‘home-country control’ – could also be subject to the bonus-malus
rules. See on this Bigot, Traité de droit des assurances, volume 3, point 343, footnote 256.
(38)
–	Case C-294/00 Gräbner
[2002] ECR I-6515.
(39)
–	The Luxembourg Government relies in that respect on Case 205/84 Commission
v Germany
[1986] ECR 3755.
(40)
–	The Luxembourg Government relies here on Case C-55/93 van Schaik
[1994] ECR I-4837.
(41)
–	Case C-398/95 SETTG
[1997] ECR I-3091.
(42)
–	According to the French Government those reasons were accepted as legitimate in Case 252/83 Commission
v Denmark
[1986] ECR 3713 and in Case 406/85 Gofette and Gilliard
[1987] ECR 2525.
(43)
–	See above, point 65.
(44)
–	Case 205/84, cited in footnote 39, at paragraph 47.
(45)
–	In relation to the insurance industry it appears appropriate to refer to the pathbreaking judgments in Case 252/83, cited in footnote 42, at paragraph 20, and Case 205/84, cited in footnote 39, at paragraph 30.
(46)
–	See in particular Article 3(1) of Council Directive 72/166/EEC of 24 April 1972 on the approximation of the laws of Member States relating to insurance against civil liability in respect of the use of motor vehicles, and to the enforcement of the obligation to insure against such liability (OJ, English Special Edition 1972 (II), p. 360).
(47)
–	On road safety as a justificatory reason, see the judgment in Case C-55/93, cited in footnote 40.
(48)
–	Reference may be made here to the recurring issue of the ‘yellow numberplate’; see, for example, Case C-232/01 van Lent
[2003] ECR I-0000.
(49)
–	To this effect, see also Dubuisson, cited in footnote 30, at point 44.
(50)
–	As suspected by Dubuisson, cited in footnote 30, at point 44, the number of road accident fatalities in a Member State without a statutory bonus-malus
system, such as, for example, the Federal Republic of Germany, is, according to the figures of the German Federal Statistical Office – both in absolute terms and relative to the volume of traffic – lower than in France.