France and Luxembourg win Car Premium Case

Publication date: 07 September 2004

The European Court of Justice ruled (Case C-346/02 and C-347/02) today that the legislation in French and Luxembourg, laying down systems under which policyholders are placed on a premium scale according to their accident record (bonus-malus systems), is not contrary to the freedom to set premium rates that is established by Community legislation.

The Court found that while the bonus-malus systems introduced in France and Luxembourg have effects on changes in the amount of premiums, they nevertheless do not result in the direct setting of premium rates by the State, since insurance companies remain free to set the amount of the basic premium. Neither the French nor the Luxembourg bonus-malus scheme can therefore be equated with a system of approving premium rates that is contrary to the principle of freedom to set rates.

Background:
Since the European Commission took the view that the bonus-malus systems in force in France and in Luxembourg for motor-vehicle insurance contracts infringe the principle of freedom to set premium rates established by the 1992 directive relating to direct insurance and are contrary to the objective of that directive (the securing of freedom to market insurance products within the Community), it had brought infringement proceedings against France and Luxembourg. In the Commission's view, the national rules which require insurance companies to integrate into motor-vehicle insurance contracts a system under which policyholders are placed on a premium scale according to their accident record, were contrary to the directive since they result in the establishment of systems having automatic and compulsory effects on premium rates.