The French insurance market is complex due to its legal and competition structure, as well as the ways and customs of the French themselves. However, as Jean-Pierre Menanteau explains, if insurers take customer service and innovation seriously they can make serious strides forward.
In a complex environment, French insurers only have one solution available to them if they want to retain their clients and that is to innovate.
With €200bn of premiums in 2009 (77% in life, 23% in general insurance), the French insurance market ranks second in Europe after the UK and before Germany. French insurers hold total assets of €1.62bn (€1.25bn in life insurance).
Bancassurance has a total market share of 60% in the life market and 10% in GI; tied agents hold 7% of market share in life against 35% in GI; while brokers' market share is 14% in life and 18% in GI. Direct sales represent 16% of the life market but only 2% in GI and, although mutual companies represent 33% of GI, they have had no significant impact in the life channel. Other distribution channels (including phone and internet) have 3% market share for life and 2% in GI.
Longevity probably best describes the French market with only a handful of French GI insurers and one life insurer going into bankruptcy in the last 65 years. The life company was a very small one and some of the GI companies were attempts by foreign groups to penetrate the market.
The country's history, its legal system and the French culture itself can go some way towards explaining how complex the industry is and why some companies succeed where others fail. First, France's history and legal system is mainly a legacy: the choice of the Roman Right created a real casuistic science. Without knowledge and experience of this it is impossible to develop a stable and profitable insurance business.
In addition to this, the insurance market only offset the consequences of World War II in the late nineties. In 1945 and 1946 financial groups above 1bn Francs were nationalised, with some exceptions, which include Aviva ancestors. The companies merged into three big groups: Union des Assurances De Paris, Assurance Générale de France and GAN.
UAP was eventually bought by Axa in 1996 after having bought Victoire's foreign business, while Commercial Union bought Victoire's domestic business in 1994. AGF was purchased by Allianz and GAN by Groupama in 1998. In the meantime, following Credit Mutuel - because of a need for a financial upturn - and Société Générale, by the hazard of friendly but competitive relationship between the CEO of the time and the CEO of an insurer group having bought a bank, the banking sector massively launched life insurance operations and, from the beginning of the century, has attempted to also develop in GI.
However, banks found it more difficult to develop a GI business than to enter the life market. This can be explained by the influence of the mutual companies, which showed a large growth in motor and household insurance during the 1960s. Mutuals had lower costs and pushed the prices down. For the same reasons, direct marketing has not showed the same growth in France as in the UK. The price difference only accounts for a few percent and it is generally not enough to convince people to change insurer. As a consequence, competition is fierce and products contain more services.
The French insurance market has also seen less mergers and acquisitions than in the US or the UK. The reason for this can be found in the market structure. In life insurance, there are a few big players and some banks. When it comes to GI mutual companies account for nearly half of the motor and household customers and as mutuals cannot be bought, the game of external growth is very difficult to play.
The impossible demutualisation
As in most countries mutual insurers are the property of their members. But where France differs in its mutual structure is that a mutual company is, in fact, the property of the community of former, present and future members. It is, therefore, easy to pay the present members, but much more difficult to pay those of the past or those of the future. The only option, therefore, is for mutual companies to merge with each other and form mutual groups. There are judicial tools that enable them to evolve even across borders, but in France a private company simply cannot buy a mutual one.
The only possibility to ‘merge' has been used by Claude Bébéar to create Axa and this was done by making the mutuals shareholders part of one of the holdings and transferring part, or all, of their portfolios to its subsidiaries.
Mutual companies, specialising in GI, are now trying to enter the life insurance market, with mixed success, because it is difficult for their sales forces to shift to such a different product.
The overall picture of the market suggests what works and what doesn't. Foreign insurers that have been in the market for a long time have been able to seize acquisition opportunities and have developed some originality - such as Allianz, Generali or Aviva - and they deserve their position on the market.
Aviva has supported Afer since its formation in 1976 and has helped to lead the market. Afer is a non-profit organisation created to provide life insurance contracts to its members. Its product of the same name led the market as competitors were forced to copy as much of it as possible. It was the first policy to let people choose how much and when to invest. It was also the first to be so simple to understand with a clear and transparent commission system and the only one to give back customers the full interest of the assets invested. Afer has also long been the lobbying force on the French market.
Therefore, innovation is the only way for insurers to protect their margins. Looking at this picture, some may believe that the French market is closed and impossible to penetrate. It is not - although, clearly, changes do not occur quickly in French insurance. It is a very mature market where things evolve slowly or even very slowly. It took 20 years for banks to achieve a 60% share in the life market, but this proportion has now been stable for 10 years.
At the same time, even if evolutions are slow, they are permanent. In a market where competition is high and where a product cannot be protected by trademarks, copyrights or licences; where margins tend to lower rather than rise; marketing and customer relationship management are increasingly important.
This is the French insurance challenge. The market is complex due to its legal structure, its competition structure, the ways and customs of the French themselves. French insurance, more than other business, is under the control of its regulators, in a country where consumerism has a growing power and where government has long been seeking new taxes to cover its deficits due to a very high appetite by French people for public spending.
Coming evolutions and revolutions will be in long-term care, in products taking fully into account long-term trends of French society, in increasing banking and postal bank distribution power, in claims costs co-sourcing, in customers services transformed in business lines (such as the custodian business which emerged as a business from the old in-house banking services) in direct, in consumerism and in the effects of pan-European mergers on domestic markets.
Taking those facts into account, insurers will also have to go on changing their image to become companies that really care for their customers and crisis management will be key to that.
Jean-Pierre Menanteau is chief executive officer for Aviva France
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