Brussels, 25 October 2001
Motor insurance: Commission calls on Belgium and Finland to withdraw their mandatory no-claims bonus systems
The Commission has decided to send Belgium and Finland reasoned opinions formally requesting them to cease applying a mandatory no-claims bonus system in third-party motor insurance. In the Commission's view, such a system is contrary to the freedom to set scales of premiums established by the third non-life insurance directive. In the two countries concerned, the adjustment of premiums according to the damage caused by drivers is not calculated freely but has to comply with detailed, mandatory criteria laid down by law. The issue of a reasoned opinion is the second step in infringement proceedings under Article 226 of the EC Treaty; if Belgium and Finland fail to comply with the opinion within two months of receiving it, the Commission is entitled to bring the matter before the Court of Justice.
"Insurance companies should be entirely free to set their scales of premiums, so that drivers can choose the most advantageous offer", said single market commissioner Frits Bolkestein. "Our intention is in no way to scrap the no-claims bonus system for differentiating between good and bad drivers, but to leave insurance companies free to choose the way in which they reward good drivers through lower premiums. With Belgium and Finland, we have been trying for ages to find an amicable solution, but without success. The Commission is therefore formally calling on them to comply with Community law, failing which it will take them to the Court of Justice".
The Commission's assessment
The third non-life insurance directive (92/49/EEC) introduced the freedom to set scales of premiums and abolished prior or systematic approval of scales and policies, including in motor insurance, the aim being to complete the single market in insurance. The directive has been in force since 1 July 1994.
The Commission does not dispute the Member States' right to introduce a scale that takes into account the damage caused by policyholders or even a uniform no-claims bonus system. It takes the view, however, that in so far as mandatory no-claims bonus systems have automatic and mandatory repercussions on premiums they breach of the principle of tariff freedom.
Insurers operating on the Belgian or Finnish markets are currently unable to choose other criteria for taking into account the policyholder's past record with a view to freely adjusting the basic premium either upwards or downwards. The Commission has already pointed out to the authorities of both these countries that other systems exist which enable the policyholder's past record to be taken into account without including tariff elements.
There are, for example, step-based no-claims bonus systems that do not impose any mandatory rebate/surcharge coefficient and in which insurers are free to decide on how the premium is determined, taking account of the seriousness of the claim or of the number of penalty points, not merely the number of accidents, and freely assessing the economic impact of each factor on the premium (as insurers do when they calculate the amount of the basic premium).
The Commission has no intention of undermining Member States' efforts to promote road safety and prevent accidents. Such objectives must in all cases be pursued in compliance with the requirements of the proper functioning of the single market, and in particular the freedom to market insurance products throughout the Community. This approach has recently been confirmed by the Court.
In Belgium current legislation(1) requires the annual premium payable by the policyholder to be determined according to a "scale of steps and corresponding premiums". The scale consists of 23 steps numbered from 0 (54%) to 22 (200% of the basic premium). On this scale, the premium is adjusted at the end of each year according to the number of claims for which the insurance company has paid or will have to pay compensation to injured parties. If one or more such claims are made during the insurance period, the policyholder moves five steps up the scale each time, whereas in order to move down the scale one step only he has to drive for a whole year without being responsible for an accident.
Some time ago the Belgian authorities announced their intention of withdrawing this mandatory system and introducing a new one involving the creation of a rating bureau. However, the promised draft royal decree has yet to materialise and insurance companies operating in Belgium still have to comply with a system which limits commercial freedom.
In Finland all insurance companies have to adopt a scale of premiums based on the one annexed to the current legislation.(2) According to that scale, any new insurance policy must be classed in the "U" no-claims bonus category (0% bonus). After six months have elapsed without a claim, the policy moves down one step and can move to a different category no more than once a year: a claim-free first year entitles the policyholder to a 10% bonus and any further claim-free year confers an additional 5% reduction in the premium. After 13 years without claims, the policyholder is classed in category S (70% bonus). On the other hand, the policy moves to a higher category following any claim influencing the no-claims bonus in accordance with a schedule laid down by the ministerial decision, and the premium is compulsorily adjusted by the percentage stipulated in the decision. For example, a policyholder in no-claims bonus category S (30% of the basic premium) who is involved in two accidents during the same period will compulsorily be moved to category 4 (75%), thereby incurring a penalty equivalent to 45% of the basic premium.
(1) See Chapter X of the Royal Decree of 14 December 1992 on standard policy conditions for third-party motor insurance (Belgian Official Gazette of 3 February 1993, p. 2060).
(2) Ministry of Social Affairs and Public Health Decision of 29 March 1999 (registered under No 38/02/1999).