Brussels, 8 February 2002
Motor insurance: Commission calls on Luxembourg to withdraw its mandatory no-claims bonus system
The European Commission has decided to send Luxembourg a formal request 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 Luxembourg, 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 formal request takes the form of a reasoned opinion, the second step in infringement proceedings under Article 226 of the EC Treaty. If Luxembourg fails to respond satisfactorily, the Commission may 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 Internal 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".
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 Internal 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 the principle of tariff freedom.
Insurers operating on the Luxembourg market 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 Luxembourg authorities 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 Internal Market, and in particular the freedom to market insurance products throughout the Community. This approach has recently been confirmed by the Court (judgment of 11 May 2000 in Case C-296/98 Commission v France).
The Luxembourg legislation
The Luxembourg rules(1) lay down mandatory criteria applicable to all third-party insurance policies taken out by individuals to cover motor vehicles normally based in Luxembourg. Such policies have to embody a system for personalising the premium on the basis of the policyholder's past record. Under this system, a new policyholder is placed in step 11 on the no-claims bonus scale (0% bonus). After a twelve-month observation period in which no claim is made the policyholder moves down one step: the first claim-free year does not earn the policyholder any bonus, but any further year without a claim reduces the premium by 5%. After a period of 11 years in which no claim is made, the policyholder is classed in step 1 (50% no-claims bonus). Two further claim-free years each bring a 2.5% bonus, the lowest premium payable being 45% of the basic premium. Thereafter, the policyholder can move down to step 3, but cannot earn any further bonus. On the other hand, each claim made in any twelve-month period causes the policyholder to move three steps up the scale. The scale is imposed by Article 7(1) of the Regulation, which requires the premium to be adjusted upwards or downwards by a mandatory percentage.
For example, a policyholder in step 11 (therefore paying 100% of the basic premium) who makes two claims during the same twelve-month period would be moved up to step 17 (140%) and would thus incur a (mandatory) 40% increase in the basic premium. Changing vehicles or insurance companies has no impact on the policyholder's position on the scale.
Details of current infringement procedures against all Member States are available on the Europa website: http://ec.europa.eu/secretariat_general/sgb/droit_com/index_en.htm#infractions
(1)See Articles 3 and 7 of the Regulation of 20 December 1994 implementing Article 17(2) and (3) of the Law of 7 April 1976, as amended, on third-party motor insurance and the conditions to be met by third-party motor insurance policies.