Qualification of a contract as an insurance contract: the position of the FSMA

The FSMA, whose responsibilities include supervision of the insurance sector, recently reiterated the essential elements of an insurance contract. An insurance transaction is characterised by the existence of coverage of a risk, where it is in the insured person's or beneficiary's interest that this risk does not materialise ("insurable interest"). It does not matter whether the person offering the risk coverage uses insurance techniques. However, a warranty cannot be classed as an insurance contract if it is merely an accessory contract or an extension designed to improve the quality of the main transaction.


One of the FSMA's tasks is to ensure that firms subject to its supervision comply with the provisions of the Insurance Act of 4 April 2014 (article 45 of the act of 2 August 2002 on the supervision of the financial sector and financial services). 

In this context, the FSMA has recently published a "position" regarding the essential elements of an insurance contract (communication FSMA_2015_13 dated 26 August 2015). This position provides a summary of the various views that the FSMA has expressed in several cases which were all linked to the same question – whether a particular financial product should or should not be classed as an insurance contract within the meaning of the act. 

Insurance contracts and actuarial techniques 

In principle, only specialised firms using actuarial techniques to manage the risks they assume are authorised to engage in insurance activities. 

Controversial case law considered that an insurance contract only exists when the contract offering risk coverage has been entered into with a professional using insurance techniques. This case law was based on a precedent from the Court of Cassation dated 18 June 1992, which seemed to have established this principle in a very particular case.

This case law is now obsolete since the introduction of the new definition of "insurer" laid down in article 5, 1° of the Insurance Act of 4 April 2014: "any person or firm who offers, as a party to the contract, to subscribe to one or more insurance contracts, regardless of his/its professional qualifications and regardless of the use of actuarial techniques when concluding these contracts". This return to the old principles is justified: the use of insurance techniques by the person offering risk coverage is not a characteristic of the product, but relates to the internal structure of the offeror, which is irrelevant for the classification of the contract. 

Insurance contracts and the insurable interest

An insurance contract is an aleatory contract covering a risk, the non-occurrence of which is in the insured person's or the beneficiary's interest (section 5, 14° of the Insurance Act of 4 April 2014). This interest is called the "insurable interest". The actual materialisation of the insured risk causes damage to the insured person or to the beneficiary of the insurance.

If there is no insured risk, there can be no insurance, but only a bet or a financial transaction governed by rules other than the rules governing insurance. This is the case, for example, for derivatives (e.g. CDS) which do not necessarily cover a risk, but which may also be used, within certain limits, for purely speculative purposes.

Insurance contracts and warranties 

Enterprises often wish to improve the quality of their goods by offering, against payment, an extended product or service warranty covering specific risks affecting the product or service. One of the characteristics of such a transaction is that it includes an "insurable risk", i.e. a risk which the beneficiary of the warranty does not want to materialise. 

In this respect, the FSMA recalls that the CBFA already considered in 2007, by way of a preliminary decision (ruling), that an extended warranty offered by a manufacturer, against payment, on his products sold through a distribution network does not qualify as an insurance contract. Categorisation as an insurance contract has been rejected because the warranty is merely an ancillary contract designed to improve the quality of the main transaction. An insurance contract independently covers a specified future event which is, however, uncertain and which would cause damage to the insured person.

Nicolas Schrans

Jean-Marc Gollier