French Financial Market and the French Financial Consumer

Abstract

French citizens tend to have relatively high levels of savings; however this does not contribute to strong individuals’ support to the financial market. Traditionally in developed market, the financial assets of most citizens are constituted by their pension funds managed on the basis of the constitution of an individual account, process known as capitalisation whereby each individual owns a set of financial assets, generally through a fund management company. On the contrary, in France, the pensions, for the most part, are based on repartition whereby the workers pay on an ongoing basis the pensions of those retired. The system will be explained further later in this chapter. The result is that financial assets are owned by a limited fringe of the population.

Attachment 1—The Cima Markets

1.1 The French Inspired Protection System for Insurance in Africa

This chapter is devoted to the situation in France, with elements drawn for the European Union as although the markets remain national, the road to a unified financial consumers’ protection system is well underway. However, as through a convention in which France still plays a role, the French speaking African Insurance Consumers enjoy a protection derived from the French and European system. Furthermore, the existence of two monetary zones using the CFA, a monetary unit directly linked to the Euro with a fix parity, ¹⁴ it makes sense to make a mention of the system as an appendix to the French chapter.

There is an additional rationale for this appendix as several of the major European Insurers, including Groupe AXA and Allianz as well as Intermediaries, like Gras Savoye are major players in Africa that they view as growth areas.

As a matter of fact, if African country are far behind in terms of Insurance penetration, they are offering a significant opportunity for development, including micro-insurance. One of the challenges to be overcome is the independence of local insurance supervisors who are traditionally nested within the ministry of finance and take their orders from the elected officials. The CIMA agreement aimed at providing a supra-national answer lto this challenge

Penetration rates in CIMA countries (ration of premium over GDP), is extremely low between 0.34 and 1.89% of GDP; as an element of comparison it is around 6% in Europe. The market is still growing at a rate that, although much higher than developed countries, will not allow it to reach their level before decades!

Most national insurance codes in the French speaking African country are inspired by the French code, as most of their civil legal context. However, in view of the difficulty to form independent solvency control opinion a supra-national consortium for insurance control was formed: CIMA. ¹⁵

The history stems from the creation in 1962 of the CICA ¹⁶ whose main mission was to ensure efficient operations for insurance companies and agencies operating in former French Colonies in West Africa and Madagascar. The convention signed on July 27, 1962 gathered 12 ¹⁷ countries.

The main objectives set where:

• Harmonisation of the national legal and regulatory context;

• Coordination of insurance companies control processes;

• Coordination of the education of African Insurance managers.

As more and more African Insurance leaders were educated, and that national leaders realized the importance of the insurance sector for the development of national economies, they initiated different moves to ensure that insurance premium are invested in the countries, rather than sent to other continents, especially through reinsurance contracts.

To further their goals the African States ratified on July 10, 1992 in Yaoundé (Cameroon) a Convention gathering 14 ¹⁸ African countries.

All the authority usually attributed to a national supervision agency (authorisation, solvency assessment, injunction and sanction powers, authorisation withdrawal, etc.) have been transferred to the CIMA. The only mission left at the national level for national supervisors are the issues relating to insurance intermediaries and technical experts. As a local relay point, the national supervisors are expected to implement the decisions made at the CIMA level.

The institutions of the CIMA are structured around three organs: the council of Ministers, regrouping the minsters of finance of the 14 countries, the Regional commission for insurance control (régionale de contrôle des assurances—CRCA), and the General Secretariat.

The CRCA is the regulation organ and it performs the specific competencies relating to the insurance companies’ control. It has the power to sanction. It holds at least two ordinary sessions every year. In practice, it holds a quarterly meeting to rule over the specific situation of the companies that have been controlled.

The CRCA consists in the following members:

• one lawyer with experience in Insurance law;

• two personalities with a solid experience in the African insurance market, one of whom is acting as technical advisor to a country not member of the CIMA, or an international organisation;

• six representatives of the national control agencies;

• the CEO of CICA-RE and a personality qualified in financial markets, appointed jointly by the governors of both central banks of the zone;

The major innovation of the CIMA agreement was to create of body of insurance control commissioners responsible for the permanent control of the insurance organisations in all member countries. They are not only in charge of both a desk and in situ audit, but they conduct also all relevant research for the insurance markets. They are recruited in all member states through a competitive exam process where only merit and competencies are considered.

The installation of the CIMA with its single regulation and supervision scheme has been a signal for a new development of the insurance industry in the member states. Even though adjustments and improvements are still to be made over the years, the CIMA gains have been clearly identified since 1995 when the treaty came into force. Thanks to its clear legal framework, strong management standards, and consistent organisation, the CIMA has generated healthy insurance practices. As a result the market has gained in efficiencies and effectiveness.

Furthermore, some adjustments have been made to modify and strengthen the legal context to improve the environment in which the insurance industry can develop, improve its retention capacity and ensure consumers’ protection, especially when they suffer a loss and are entitles to compensation. The following points are achievements of the CIMA agreement:

• Development of community coinsurance to strengthen and consolidate cooperation between member state, so that the native companies are jointly capable of offering covers and limits for major industrial risks what would exceed each individual capacity and thus increase the premium retention at the regional level;

• Adoption of new governance rules that forced insurance companies to develop internal rules framing the roles and the functions of the administration and management bodies and implement internal control and an efficient asset-liability management for their level of activity;

• Development of prudential norms to assess the financial health of insurance companies, and group: consolidation rules, reporting and statistical reports;

• Implementation of rules to curb fixed and administrative costs, including technical assistance;

• Reinforcement of control over intermediaries: adoption of models for slips and statements sot that supervisors can have a better view of the intermediary activity, elaborate a guide for the control of intermediaries;

• Reinforcement of the rules concerning insured and beneficiaries of life insurance contracts;

• Establishment of new experience data tables to improve pricing and reserving in line with the risks underwritten;

• Development of new rules for access to the capacity to make sure of the competencies for the insurance statutory auditors;

• Writing new rules specific for micro insurance so that covers can be extended to insurable populations with lower income;

• Development of a new sanction regime that provide the regulation agency with powers to act swiftly and autonomously sot avoid court proceedings;

• Reform of the bodily injuries compensation resulting from car accidents to avoid litigious situations that could end up in courts; reduce the victims’ compensation delays, and accelerate claim settlements process;

• Interdiction of insurance covers delivery without prior payment of a premium to fix one of the worst issue of the CIMA zone, i.e. the very high level of premium backlogs appearing on the insurance companies’ balance sheet;

• Taking actions to speed up the compensation process for claims through improved cash situation and solvency;

• Reinforcement of the reporting system thanks to new statements with more frequency.

Thanks to all these consolidation measures, the players in the markets have been encouraged to adjust this structure and organization. New group are born, old ones are expanding and new branches of insurance will be offered thus expanding further the insurance turnover. The African market of insurance has experienced a number of mergers that have given birth to some native international groups of a reasonable size to compete with the International leaders from Europe or North America. The results in terms of premium are starting to show. One area where national insurers are keen to gain expertise and financial capacity is the insurance of larger industrial groups so that the premium can be kept on the continent to help its development.