Vive la difference

For two countries that are so geographically close together, the UK and France could hardly be more different. From food and wine to fashion and culture, both countries have developed very separate and recognisable identities and have had more than their fair share of spats in trying to decide whose is best. It is therefore no surprise to find the insurance markets on either side of the channel are also very different, despite serving much the same need in both countries.

But where are the major differences and how do they affect the way business is done? What impact do they have on the insurance cycle? Is one way of doing things better than the other? Also, at a time when European legislation is pulling markets across the continent closer together than they have ever been in the past, will there be room for such divergence in the future?

The French model

At first glance the biggest difference between the UK and French insurance landscapes is the distribution setup. The UK prides itself on being one of the major insurance centres of the world and there is no doubting the sophistication of the London market operators and their ability to deal with any size or shape of risk.

Brokers in London and across the UK hold influence and, especially in the commercial market, have become a powerful part of the setup. By contrast, the broker community in France, while certainly important, does not compare with the power wielded by listed insurance companies and mutuals that dominate the scene.

Mutuals in France operate branch networks across the country and while the insurers have a similar reach in the regions it is not done through their own staff, but rather through tied agents that operate under insurers' brands. In many ways it is not dissimilar to a franchising model where people take on the branch of an insurer in a certain region, but run it almost like their own business.

This does not necessarily mean that clients are short on choice. Indeed some of these tied agents are so big that they operate almost like a broker as Alan Clarke, director at European Insurance Services commented: "Some have got to a size where they act almost as brokers because their parent company may not have all of the products in all of the ranges they need. The parent tends to allow them to deal with other firms so long as it does not interfere with its own range of cover."

Giving an overview of how big a part of the market these insurance agents and their mutual counterparts occupy, Francois de Meneval, a senior vice-president at Axa, explained: "In France there is no doubt that the major distribution channel is through tied agents and mutuals, which have their own branches with their own sales forces. Both represent about 35% of the market and this has been pretty stable for the last five years."

In turn, Meneval said brokers make up a little less than 20% of the general insurance market, with banks accounting for around 10% and the direct writers taking up only a very smalll proportion. Many would see this as an old-fashioned set-up and there is little doubt that the French seem to value the personal relationships they have with their insurance providers. They are also not so driven by price as customers in the UK.

However, this is not the only reason the insurance companies and mutuals have been able to maintain their hold on the market and until recently policies have been automatically renewed at the end of their term. Consequently there has not been so much churn historically in the French market.

In many ways this has had a very positive effect. Alain Couard, an ex-director at Independent Insurance in France who now works with EIS, said it is partly the reason that the insurance cycle is less turbulent in the Gallic market. Explaining the phenomenon, he said: "The cycle in the UK is more violent and when it is bad all of the companies increase premiums by a very large percentage. In France the end result is the same but the cycles are longer and smoother because people are not jumping ship so quickly. This is true in both the personal lines and commercial markets."

Whether this continues to be the case or not remains to be seen. New regulations introduced to the market last year mean that French insurers have to provide more information to clients at least one month before the end of their policies, explaining the new premium that will be in place for the coming year and giving them notice that the policy is coming to an end. The new legislation has not been in place for long enough to be assessed thoroughly, although there seems little doubt that it is beginning to feed through and make consumers more aware of the choices they have when it comes to buying insurance. In time this will doubtless have an impact on the French market's landscape.

Although each and every insurance market has its own characteristics, they are becoming increasingly entwined as firms spread their wings into new overseas territories. Much has been made in recent months of the acquisitions that Axa has made in the UK broker market, and some have suggested the insurer is trying to import its French model into the UK.

Looking at the economics of the situation, Couard says buying a brokerage is a cheap way of expanding and commented: "If a company wants to grow by external growth, usually the price to buy a book of business is 100% of one year's premium. If they are buying a brokerage they are buying at a price between two and three times the commission. This means that for 30% of the premium they get the business that could otherwise have cost them the full 100%."

Meneval is keen to point out, however, that Axa is in no way trying to create tied agents and bring all of the business written by its newly acquired UK brokers onto its own books. He said the move is instead designed to create another corporate revenue stream: "When we acquire a broker it is not to transfer it into a tied agent; we want to keep them independent." He believes that to do otherwise would be to risk credibility.

The traffic into the UK market is not one way and there have been a number of UK firms that have sought to establish themselves in the French market. Before his time with EIS, Clarke was president of Independent Insurance in France, but he believes it is not easy to build business volumes quickly on the other side of the channel. This is perhaps symptomatic of the hold that the established French firms have at the moment and he said: "There had been a number of UK and American companies that had been in the market and then pulled out, so I think the broker market is more cautious than that in the UK."

Damage

Despite this, EIS is forging a market for itself in France offering a product called 'dommages ouvrage'. The cover is a mandatory insurance that lasts for 10 years and pays out in the instance of damage to a property relating to the workmanship that went into building it in the first place. The idea is that in the event of a problem a homeowner does not have to wait for months or years to get the claim sorted as insurers debate who should be held liable.

Dommages ouvarge insurance must be paid out within 90 days, and having settled the claim for the property owner it is then up to the insurer to establish where the liability lies and recoup the costs from the appropriate party.

As many French insurers offer dommages ouvrage as well as provide liability insurance to builders, plumber and construction companies, they can very often end up chasing their own tails to settle claims. By selling only dommages ouvrage policies, Clarke said it is easier for EIS to recoup the necessary costs from French insurers and make the insurance work profitably for the firm.

As he explained: "In terms of results, dommages ouvrage has always had dreadful results as there has been very poor administration and people have not taken the time to get all of the details of those involved in the construction of a property, let alone details of their insurers." By taking a different approach it has been possible for UK-based EIS to reverse the poor results that others have had in this area. Therefore, although the French market may not be the easiest to break into, there are opportunities to be had in various niche sectors.

Despite the perception that it is easier for new firms to establish themselves in the UK market, Clarke believes it is getting a lot more difficult than it was five or six years ago and many now struggle to win and keep hold of new broker business. Whether or not this is purely as a result of the softer market is a moot point and certainly it will be interesting to see how this trend develops as the UK market hardens.

For French brokers, a more pressing matter will be how regulation develops and the burdens it places on them in the coming months and years. Most commentators accept the UK market is more advanced in terms of the legislation already in place and the capital requirements that are put upon insurers at the moment, but things are certainly gearing up in France.

Looking at how things are developing, Couard commented: "We are maybe five years behind the UK and the authorities are concentrating on giving a number to each and every intermediary and agent. It was supposed to have finished in February but it has not been completed. We all know that there are new rules in place about advising clients but the authorities have not taken the same kind of control the UK has taken at the moment."

As yet there remains a question mark over the financial impact that further regulation will have in France; Couard is unsure if it will become more expensive to operate and if so, then by how much. If it does become more costly as the experience in the UK would seem to suggest, how much brokers will have to spend remains an unknown.

However different the French and UK markets may be at the moment, what seems certain is that they will grow closer together in the future as firms on both sides of the channel take advantage of expanding their operations and buying into each other's corporate landscape. Nonetheless, the discussion will doubtlessly continue to rage over who does things best.