1. By its application, the Commission of the European Communities seeks a declaration 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 conducting their business there by means of branch offices or of 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 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), the French Republic has failed to fulfil its obligations under that directive. Legal context Community legislation
2. Article 6 of Directive 92/49, which is in Title II headed ‘The taking up of the business of insurance’, provides: ‘Article 8 of Directive 72/239/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. …”.’ 3. Article 29 of Directive 92/49, which is included in Title III headed ‘Harmonisation of the conditions governing the business of insurance’, states: ‘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.’
4. 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) states: ‘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 legislation
5. The first paragraph of Article A.121-1 of the French Insurance Code states: ‘Insurance contracts falling within the branches referred to in Article R. 321-1(3) and (10) of the Insurance Code and concerning motor vehicles must include the clause for the reduction or increase of premiums or subscriptions annexed to this article’ (the bonus-malus clause).
6. The annex to Article A. 121-1 contains 14 articles. These provisions stipulate that the insurance company is to determine a reference premium from which the annual premium payable by the policyholder is calculated. The annual premium is the product of the reference premium multiplied by the reduction/increase coefficient, which initially is set at one. Whenever a period of one year has passed without an accident, this coefficient is reduced by 5%. However, the coefficient cannot be below 0.5. Conversely, when an accident occurs in the course of a given year, the coefficient is increased by 25% and each further accident results in an increase of the same proportion. However, there is no increase for the first accident that occurs after a period of at least three years during which the reduction/increase coefficient has been 0.5. Nor can the increase coefficient in any event exceed 3.5. Pre-litigation procedure
7. Following an initial exchange of information between the French authorities and the Commission, on 7 July 1997 the Commission sent a letter of formal notice to the French Republic in which it expressed the view that the bonus-malus system in force in France was incompatible with Directive 92/49.
8. The French Government replied to the letter of formal notice by a note of 23 October 1997, supplemented by a second note sent to the Commission on 31 July 1998.
9. Following various exchanges between the Commission and the French Ministry for Economic Affairs, Finance and Industry, the former, by letter of 20 April 2001, sent a reasoned opinion to the French Republic, in which it confirmed its analysis leading it to consider that the national bonus-malus rules were contrary to Community law and called on that Member State to take the measures required in order to comply with the reasoned opinion within a period of two months from notification thereof.
10. The French authorities sent observations responding to the reasoned opinion to the Commission by letter of 18 July 2001 in which they contended, first, that the bonus-malus system did not affect the freedom to set rates and, second, that that system was founded on public-interest considerations recognised by the Court’s case-law.
11. Since the Commission considered that the measures needed to comply with the obligations resulting from Directive 92/49 had not been taken by the French authorities, it decided to bring the present action. Substance Arguments of the parties
12. The Commission contends that the French bonus-malus system is contrary, first, to the principle of freedom to set rates flowing from Directive 92/49, which prohibits the Member States from requiring notification, prior approval or systematic disclosure of premium rates which an insurance undertaking intends to apply, or of increases in those rates which it intends to implement, in a Member State and, second, to the very objective of that directive, which is designed to secure freedom to market insurance products within the Community. It submits that its interpretation is borne out by the judgments in Case C-296/98 Commission v France [2000] ECR I-3025 and Case C-59/01 Commission v Italy [2003] ECR I‑1759.
13. The Commission does not dispute that it is open to Member States to establish a scale which takes account of the accident record of policyholders or even a uniform bonus-malus system. However, such arrangements are, in its submission, contrary to Directive 92/49 where their effect on premium rates is automatic, which is the case with the French bonus-malus system.
14. The Commission accepts that insurance undertakings are not prevented from freely determining the amount of the basic premium (or reference premium) and that criteria other than the reduction/increase coefficient play a part in alteration of the premium payable by the policyholder. However, that freedom would be largely illusory if insurance undertakings were able to adjust premiums in the light of a criterion as fundamental as the policyholder’s accident record only by observing the requirements of the annex to Article A. 121-1 of the French Insurance Code.
15. The Commission adds that the adjustment imposed by that national provision does not have a marginal effect on the amount of the premium, but can increase it from the basic premium to double that. Furthermore, the constraints on the undertakings entailed by the French bonus-malus system affect the amount of the basic premium, which is all the higher as those constraints are substantial. It cannot therefore be maintained that that system constitutes a ‘neutral matrix’ which does not affect the freedom to set rates.
16. The French Government points out first of all that the obligation to submit scales of premiums in advance was repealed in 1994 and that the national authorities have not controlled the level of premium rates since 1987.
17. It then submits that Directive 92/49 contains no provision establishing an absolute principle of freedom to set rates which would extend to the manner in which the cost of insurance is calculated.
18. In particular, no principle resulting from Directive 92/49 or from the Court’s case-law precludes the inclusion in the method of calculating insurance premiums of a mandatory coefficient which has no effect on the initial level of the premiums and affects their alteration in a very small part only, since there is still overall freedom to set the final price.
19. The French Government states finally that application of a bonus-malus coefficient does not allow the national authorities to control either the initial level of premiums or, for the most part, their alteration over time.
20. The initial level of premiums results directly from the reference premium which insurance companies may set entirely freely, on the basis of the criteria that appear to them the most appropriate.
21. So far as concerns alteration of premiums over time, the French Government submits that application of the bonus-malus system constitutes for the national authorities not an instrument for controlling rates, but just one of the numerous factors affecting premium levels. Insurance companies remain ultimately free to alter their scales of premiums without confining themselves to reflecting the mechanical alteration of the bonus-malus coefficient. Findings of the Court
22. As the Court observed in paragraph 29 of its judgment in Commission v Italy , the Community legislature 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, as the Court stated in the same paragraph of that judgment, the prohibition of any system of prior or systematic notification or approval of the rates which an insurance undertaking intends to use in its dealings with policyholders. 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 ‘general price-control systems’.
23. In Commission v Italy , the Court held that the principle of freedom to set premiums was infringed by rate-freezing rules affecting both the fixing and the altering of the rates for insurance policies covering third-party liability arising from the use of motor vehicles in relation to risks situated within Italy ( Commission v Italy , paragraphs 32 and 48).
24. The French bonus-malus system with which the present action is concerned is, as regards its impact on insurance undertakings’ rates, different in nature from the Italian legislation which was at issue in Commission v Italy . It is true that the French system has effects on changes in the amount of premiums. However, the system does not result in the direct setting of premium rates by the State, since insurance undertakings remain free to set the amount of the basic premium. In those circumstances, the French bonus-malus scheme cannot be equated with a system of approving premium rates that is contrary to the principle of freedom to set rates, as defined by the Court in paragraph 29 of the judgment in Commission v Italy .
25. Full harmonisation in the field of non-life insurance rates precluding any national measure liable to have effects on rates cannot be presumed in the absence of a clearly expressed intention to this effect on the part of the Community legislature.
26. It is accordingly not possible to uphold the proposition upon which the Commission’s action is founded, which consists in contending that, despite the fact that the basic premium may be set entirely freely, the French bonus-malus system is contrary to the principle of freedom to set rates on the sole ground that it has effects on the alteration of that premium.
27. Nor does the Commission claim that that system is tantamount to imposing a requirement of prior or systematic notification of the scales of premiums which an insurance undertaking intends to use in its dealings with policyholders or a system of approval of such scales.
28. It follows that the Commission has not demonstrated that, by introducing and maintaining in force its bonus -malus system, the French Republic has acted in breach of the principle of freedom to set rates and of elimination of prior or systematic controls on scales of premiums and insurance contracts which is established by Articles 6, 29 and 39 of Directive 92/49.
29. Since the Commission confined the subject-matter of the reasoned opinion and of the present action solely to the finding of a breach of the principle, as arising from the provisions referred to in the preceding paragraph, of freedom to set rates and of elimination of prior or systematic controls on scales of premiums and insurance contracts, the present action must be dismissed.