Name
Global FinTech Guide
Country _ Name
France
SectionTitle
InsurTech
Body
InsurTech is composed of the words 'insurance' and 'technology'. It is used as a collective term for the application of modern technologies in the domain of insurance services.

Digital and mobile brokers: FinTechs belonging to this category mostly act as digital insurance brokers and provide users with an overview of their insurance contracts with their respective conditions. Some FinTechs offer very short-term insurance contracts to cover specific cases which can be concluded often spontaneously via mobile devices. Oftentimes additional consulting services are offered.

Internet of things: FinTechs belonging to this category collect data by measuring for example the driving style of the customers or through wearables the customers wear to consult on, offer and/or manage the customer's insurances.

Introduction

Attitude of the country towards InsurTech-services

In the context of the emergence of InsurTech, the competitive landscape of insurance sector has remained mostly unchanged: the main competitors of long-standing insurers are still banking-insurance businesses that benefit from the implementation of their group's digitisation strategies. 'BigTechs' have not entered the market, and insurers believe their entry to be unlikely in the short-term; InsurTechs are seen as partners or niche competitors rather than as threats able to bring out major changes (ACPR, Digital transformation in the French insurance sector, n°132, April 2022).

In the short-term, InsurTech players, that is to say start-ups using new technologies to conduct insurance business, are viewed as the most likely to shake up the industry. The insurers surveyed do not credit them only with advantages, though. Traditional insurers recognise the pioneering role banking-insurance actors played in terms of customer relationship, simplicity, and agility, especially thanks to the use of artificial intelligence. They also consider banking-insurers' management costs can be more competitive due to the conjugated effects of their specialisation and their information systems that are better suited to new digital uses without any outdated systems to maintain. However, they point out that these new players are positioned on specific parts of the value chain (mainly distribution and customer relations) and reach a highly targeted share of customers with specific products and uncomplicated risks, in a typically small number of business lines. Moreover, few of these InsurTech companies carry the risk directly, adopting the status of intermediary instead, which leads them to entering into partnerships with traditional players.

Three scenarios for the evolution of the financial sector are envisaged by insurance bodies:

  • Continued digital transformation of traditional players with integration of innovative start-ups;
  • Development of partnerships and distribution agreements with operators that integrate insurance as a component of a more global offer to the customer (platformisation scenario);
  • Rise of industrial and technological players, notably through partnerships with traditional, well-established insurers.
Traditional insurers point out the risk of losing customer relationships and degraded quality of service due to a fast pursuit of profitability by these new entrants in the insurance market. However, they are relatively unconcerned about the regulatory and technical barriers to entry which constitute a real obstacle to the fast and massive capture of market shares by InsurTech or Big Tech companies.

Regulatory framework relating to InsurTech

Legal affairs

Obligations and requirements to provide InsurTech-services

Institutions wishing to conduct insurance or reinsurance business must be licensed. The institutions in question are covered by the provisions of the Insurance Code, the Mutual Insurance Code and the Social Security Code as follows:

  • Governed by the Insurance Code:
    • French insurance and reinsurance companies;
    • Branches of insurance undertakings outside the European Union.
  • Governed by the Mutual Insurance Code:
    • Mutual institutions (mutual insurers and unions of mutual insurers)
  • Governed by the Social Security Code:
    • Provident institutions
    The license is delivered by the French Prudential Supervision and Resolution Authority (ACPR) for authorisation prepare an application including legal (list of insurance classes, certification of payment of funds, information about fitness and properness, expertise and experience of persons tasked with running or overseeing the institution, etc.), technical and financial components (provisional three-year programme of operations, detailed projections showing forecast sales, technical results, net profit, loss expectancy, technical provisions, coverage of regulated liabilities and solvency margin, a description of the activities in which the institution plans to engage (target customers, distribution methods etc.), a description of the reinsurance programme and a breakdown of the technical resources to be put in place to manage business). The ACPR has a total of six months to reach its decision from the date on which it receives a completed application.

    Since 1 January 1 2016, the European Solvency 2 prudential regime has applied to the French insurance market. It is comprised of three pillars:

    • Pillar 1: Capital requirement and liabilities valuation.
    • Pillar 2: Own Risk and Solvency Assessment (ORSA)
    • Pillar 3: Supervisory reporting and public disclosure.


    On 13 December 2023, an agreement on amending to Solvency II has been reached by the European Council, Commission and Parliament. The new rules that shall enter into force in 2026 aim at amplifying the role of the insurance and reinsurance sector in providing long-term private sources of investment to European businesses. It will also promote more resilience to be prepared to future challenges in view of a better protection of the insureds.

    In addition, a proposal has been made by the European Commission related to a new directive establishing a framework for recovery and resolution of insurance companies in case of insolvency “IDD proposal – Insurance recovery and resolution directive”. The proposal has been approved by the European Parliament on 29 January 2024.

    Directive (EU) 2016/97 of 20 January 2016 on insurance distribution has been internalised in French law. Three European regulations are directly applicable. Article L512-1 of the Insurance Code requires the registration of insurance intermediaries on a unique register that groups all kind of insurance intermediaries in accordance with article L.512-1, the ORIAS.

    Registration, which is renewable each year, is subject to prior payment to ORIAS of annual registration fees set according to the category of intermediary, up to a maximum of € 250. There are four categories of insurance intermediaries (article R.511-2 of the Insurance Code):

    • Insurance or reinsurance brokers
    • General insurance agents
    • Insurance agents
    • Agents of intermediaries
    Insurance brokers and their agents have to join a professional association approved by the ACPR. These four categories are not exclusive. The same intermediary may practice under several of them. The ACPR have supervisory powers over insurance intermediaries. Insurance brokers and brokerage firms are required to pay an annual contribution to cover the costs of supervision (article L.612-20 of the CMF). The amount of this contribution, paid for their activity on 1 April of each year, is currently € 150.

    Intermediaries are subject to obligations of good repute and professional capacity. In addition:

    • any broker shall undertake an insurance contract covering them “against pecuniary consequences of his professional civil liability” (article L. 512-6 of the French Insurance Code) within a minimum limit of €1,5 million per loss and €2 million per year,
    • any broker who “collects funds for payment either to an insurance company or to policyholders or uses a non-agent agent to transmit such funds” must undertake a financial guarantee with a bank or a third-party insurance company (Article L. 512-7 of the French Insurance Code.
    Penalty sanction: Pursuant to Article L. 514-1 of the French Insurance Code, any offence or failure to comply with the general principal of insurance intermediary (Articles L. 512-1 and L. 512-2 of the French Insurance Code) will face two years’ imprisonment and a fine of € 6,000.

    Administrative sanction: The ACPR will impose a disciplinary sanction against any persons (intermediary) varying from:

    • Warning
    • Blame
    • Prohibition from conducting certain intermediary operation up to 10 years
    • Temporary suspension of one or more executives from conducting an intermediary activity up to 10 years
    • Compulsory retirement of one or more executives from conducting an intermediary activity
    • Exclusion from the registry of the Prudential Control Authority (ORIAS)
    • Ban from underwriting of intermediary activity up to 10 years.


    Additional comments regarding the legal situation for InsurTech-services or what InsurTech’s must be aware of in this business area

    N/A

    Economic conditions

    Market size for InsurTech-services and biggest companies in this business area

    As of 30 April 2024, the French insurance sector comprised 724 insurance brokers or exempted from approval, compared to 695 in 2019 and 1,129 in 2010. Among these 724 organisations, the sector is divided into (ACPR, French banking and insurance market figures for 2020):

    • 327 insurance companies governed by the Insurance Code as well as 24 reinsurers;
    • 329 mutual insurers governed by Book II of the Mutual Insurance Code;
    • 44 provident institutions governed by the Social Security Code.


    In 2022, the collected premiums were € 329.7 billion in insurance market, slightly higher than in 2021 (0,5%). In non-life insurance market, collected premium rose sharply to € 168 billion (+8% compared to 2021). This growth was mainly due to property insurance. Life insurance premiums (except retirement savings and death insurance) fell slightly to € 124.6 billion (4% less than in 2021).

    The rise in interest rates is in their favor as the majority of insurers have longer terms for their liabilities than their assets. As a result, their profitability is improved and it has positive impact on their solvency (ACPR, the figure of French market of Bank and Insurance 2022, page 11 & 12 published on October 23, 2023).

    In 2022, the insurers’ net income significantly increased up to € 17.1 billion in 2022, € 5 billion more than in 2021 (i.e. an increase of around 40%). The profitability of the insurance sector has therefore improved, which is reflected in a better return on equity (7.1% in 2022 versus 6.1% in 2021).

    France keeps its leading position in European insurance market with respect to the balance sheet with a total of € 2,748 billion, ahead of Germany (€ 2,266 billion) and Italy (€ 938 billion).

    With respect to InsurTech, France has become the third country in the world with the highest number of InsurTech fundraising. However, a survey carried out by French publication L’Argus, points at the decline in fundraising by French InsurTech. In 2023, there has been an important drop (60%). Of the approximately € 3.27 billion raised by French FinTechs in 2023 (France FinTech).

    In conclusion, France is in the fourth place in term of InsurTech deals (20 InsurTech Transaction was done) behind India (26 deals done), the UK (31 deals done) and the US (216 deals done), (Global InsurTech Report for Q4 2023 published on February 1, 2024).

    Additional comments regarding the economic situation for InsurTech-services or what InsurTech’s must be aware of in this business area

    In the foreseeable future, well-established tech compagnies could try to enter the insurance market with uncertain success. For instance, in 2022, Amazon launched its platform of comparison of Home Insurance in cooperation with five UK insurance companies called “Amazon Insurance Store”. It however ended in April 2024.

    The current InsurTech companies must therefore be prepared to compete with big tech companies.

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