Nonlife Insurance for Companies: Having Inappropriate Arrangements for Premiums Common Practice?

There are growing suspicions that inappropriate price arrangements for premiums have become common practice for nonlife insurance contracts with corporate clients. The Financial Services Agency and the Japan Fair Trade Commission must strive to clarify the situation to prevent future occurrences of similar incidents.

Four major nonlife insurance companies — Tokio Marine & Nichido Fire Insurance Co., Sompo Japan Insurance Inc., Mitsui Sumitomo Insurance Co. and Aioi Nissay Dowa Insurance Co. — have each submitted a report to the Financial Services Agency on their internal investigations into making prior arrangements for premiums for contracts with corporate clients.

Although the reports have not been made public, the major insurance companies are suspected of making price adjustments in their contracts with more than 100 corporate clients. Most notable among the clients were infrastructure companies such as East Japan Railway Co., Keisei Electric Railway Co. and Sendai International Airport Co. The Tokyo metropolitan government was also reportedly among the clients.

It appears that this inappropriate behavior was a long-established practice, which is completely unacceptable.

The situation was pointed out by major private railway conglomerate Tokyu Group, which had received bids from the insurance companies. The FSA had requested the four companies to report by the end of September whether there had been similar cases apart from that involving Tokyu.

The FSA needs to thoroughly investigate how the price adjustments began and why it spread so widely, and take strict action.

The JFTC has already begun an investigation, as companies agreeing on prices in advance constitutes a cartel under the Antimonopoly Law.

In their reports to the FSA, the four insurance companies reportedly included statements of remorse, saying, for example, that their employees were not fully aware that the practice could violate the Antimonopoly Law and that workers had not been adequately trained.

In the Tokyu case, sales representatives from each of the nonlife insurance companies met to arrange the bids for insurance premiums. The ignorance regarding laws and regulations is shocking to hear.

Insurance policies for companies are often jointly handled by several nonlife insurance companies, in a form of coinsurance, as compensation tends to be huge in the event of a fire or other disasters. This is primarily the case for infrastructure companies and manufacturing companies that maintain facilities.

Even when a insurance contract takes the form of coinsurance, participating nonlife insurance companies are supposed to offer premiums individually to the corporate client.

As corporate realignment has progressed, the nonlife insurance industry has been consolidated into four major companies. This oligopoly probably led to the problem.

In recent years, insurance payouts have increased due to the severity of natural disasters, and the earnings of nonlife insurance companies have been deteriorating. However, this in no way justifies setting premiums in advance.

The nonlife insurance industry has also been criticized for its response to the inflated insurance claims issued by Bigmotor Co., a major used car sales company. Restoring trust will not be an easy task.

(From The Yomiuri Shimbun, Oct. 3, 2023)