The Commission has opened a formal investigation to examine whether France's plan to grant tax aid to insurers for managing certain insurance policies ("contrats solidaires" and "contrats responsables") is compatible with the rules on state aid in the EC Treaty. France sees the aid as a social measure which is purely of benefit to the final consumer, involves no discrimination between insurance providers and is hence compatible with the common market. Without calling into question the general social objective of the measures, the Commission wonders whether they are indeed non-discriminatory and how much consumers would really benefit from the advantages granted to insurers. The opening of a formal investigation gives interested third parties the opportunity to submit their comments. It in no way prejudges the outcome of the procedure.

At the end of 2006, the French authorities notified a series of aid measures to encourage the development of special insurance policies (contrats solidaires and contrats responsables) based on solidarity and a sense of responsibility. The first measure consists of an exemption from corporation tax and business tax for management operations connected with certain sickness insurance policies. The second allows a tax deduction for equalisation provisions relating to certain collective supplementary insurance policies covering the risks of death, invalidity and incapacity. A third measure - gradually bringing mutual societies under the ordinary tax rules - will be dealt with in a separate procedure relating to the phasing-out of the special tax arrangements currently applied to such bodies.

The French authorities argue that these measures are compatible with Article 87(2)(a) of the EC Treaty, which states that aid of a social character granted to individual consumers is compatible with the common market provided that it is granted without discrimination related to the origin of the products concerned.

At this stage, the Commission has doubts whether the three conditions set by the Treaty are met, namely (i) whether the aid measures have a social character, (ii) whether the benefits will, in fact, be passed on to individual consumers, and (iii) whether the measures are non-discriminatory.

First, it can probably be acknowledged, subject to certain details to be added by Decree, that the first measure has a social objective, namely to open up access to supplementary sickness insurance to the French population as a whole. However, at this stage, the social objective of the second measure is less clear-cut if one takes as the point of reference the time when the policies are taken out rather than the time when the serious events they cover actually occur.

Second, in both cases the individual consumer is merely the indirect beneficiary of the tax breaks granted to insurers offering eligible contracts. At this stage, the Commission doubts whether the market mechanism alone can guarantee that all the benefits are passed on to the consumer. These doubts are compounded, in the case of the first measure, by the existence of mandatory thresholds which might reduce the number of insurers able to offer contrats solidaires and contrats responsables and, in the case of the second measure, by the fact that the market for eligible collective policies appears to be dominated by the provident societies. At this stage, the prospect of the benefits being passed on in full to the consumer seems hypothetical and uncertain.

Third, some of the conditions that have to be met in order to benefit from the first measure, such as having a minimum number or proportion of contrats solidaires or contrats responsables in a portfolio, appear to discriminate in favour of certain larger or more specialised insurers to the detriment of new market entrants who nonetheless offer such policies. [14 November 2007]