Dominant Firms must not Engage in Cartel Behavior Enabled by Oligopoly

A suspected cartel has been uncovered in the market for nonlife insurance for corporate clients. It is necessary to thoroughly investigate whether inappropriate adjustments for premium prices were rampant in the nonlife insurance industry.

The Japan Fair Trade Commission has begun investigating four major nonlife insurance companies under the Antimonopoly Law for allegedly arranging premium prices in advance of bidding for corporate insurance contracts.

The four insurers are Tokio Marine & Nichido Fire Insurance Co., Sompo Japan Insurance Inc., Mitsui Sumitomo Insurance Co. and Aioi Nissay Dowa Insurance Co.

The Antimonopoly Law prohibits cartels in which companies arrange prices and unfairly restrict competition. If the four insurers violated this law, it would be a major problem. It is hoped that the FTC will get to the bottom of the suspected cartel activities and deal strictly with the problem.

Because compensation for corporate insurance in the event of a loss tends to be large, it is difficult for a single nonlife insurance firm to fully underwrite a policy. For that reason, multiple insurers work together to provide insurance coverage jointly for companies. However, premium prices in insurance contracts are basically offered to companies separately by individual insurers.

In the bidding for fire insurance for the Tokyu Group, a major private railway company, in which allegedly improper premium price adjustments were first discovered, Tokio Marine played a leading role in arranging to raise premiums across the board among the four insurers from about ¥2 billion before the renewal to about ¥3 billion afterward, according to sources.

When a cartel is formed, client companies are forced to bear the burden of premiums that are relatively high. If this is reflected in the prices of the client companies’ own services, consumers will be disadvantaged. Therefore, the practice cannot be overlooked.

Since 2000, the nonlife insurance industry has undergone a series of reorganizations and has been consolidated into the current four major insurers. Unlike insurance for individual clients, in which online insurance businesses and foreign-affiliated companies are increasingly entering the market, the four insurers reportedly account for about 90% of the market for corporate insurance.

This oligopoly may be a breeding ground for back-scratching relationships among them.

Their alleged cartel activities have been widespread, with cases of prior arrangements for premium prices suspected when they underwrote coverage for major railroad companies such as East Japan Railway Co. and Keisei Electric Railway Co., major oil wholesalers and major steel companies, among others. There is a possibility that inappropriate behavior has become the norm.

Since May, the Financial Services Agency has ordered the four insurers to report on cases of their alleged formation of a cartel based on the Insurance Business Law. Each firm said they will conduct an internal investigation through such measures as setting up a panel of outside lawyers and other experts.

The nonlife insurers must thoroughly investigate such cases, including whether they are systemic, and must clarify the entire picture of their alleged cartel activities.

The nonlife insurance industry has also been criticized for its lax response in failing to detect the padding of insurance claims by major used car dealer Bigmotor Co. All nonlife insurance companies should be aware that they are being viewed with a stern eye for their disregard for customers.

(From The Yomiuri Shimbun, Aug. 10, 2023)