Nonlife Insurance Cartel: Eliminate Heinous Business Practices and Collusion

Editorial

17:38 JST, November 11, 2024

Illegal price arrangements by four major nonlife insurers had become a common practice for nonlife insurance contracts with corporate clients. The nonlife insurance industry, the Financial Services Agency and other relevant entities must thoroughly implement measures to break away from heinous business practices.

The Japan Fair Trade Commission has found that Tokio Marine & Nichido Fire Insurance Co., Sompo Japan Insurance Inc., Mitsui Sumitomo Insurance Co. and Aioi Nissay Dowa Insurance Co. violated the Antimonopoly Law by forming a price cartel and repeatedly engaging in bid-rigging for coinsurance and other contracts for corporate clients.

The antitrust watchdog has ordered the companies to pay a total of about ¥2.07 billion in fines and take measures to prevent a recurrence of similar cases.

The JFTC identified about 600 cases of inappropriate conduct and then focused its investigation on cases involving major, socially influential clients, such as major private railway company Tokyu Corp. and the operator of Sendai International Airport.

The JFTC has confirmed that from 2019, the insurers engaged in misconduct, such as prearranging premium amounts for nine coinsurance contracts. The sales from the illegal conduct amounted to about ¥54 billion.

The spread of illegal transactions, corporate cultures that disregard laws and regulations, and the failure of governance systems are serious and unacceptable.

Many insurance contracts with corporate clients adopt a joint insurance scheme with multiple nonlife insurers, as compensation tends to be enormous in the event of a fire or other disasters. These contracts are mainly meant for infrastructure companies and manufacturers with large facilities.

However, even if contracts take the form of coinsurance, participating insurance companies are supposed to present premiums to the corporate client separately, in principle.

But, sales representatives and others from these companies repeatedly exchanged information over the phone, on social media and during meetings at places including karaoke establishments, and arranged in advance to present higher insurance premiums to their corporate clients.

An oligopoly among major companies is growing in the nonlife insurance industry, and the coinsurance scheme has made it easier for insurers to coordinate pricing.

To prevent a recurrence, the JFTC has taken the unusual step of releasing criteria for appropriate transactions regarding individual cases. It has stressed that prior price arrangements by nonlife insurance companies are a problem under the Antimonopoly Law, in principle, if the client company seeks competition through bidding or other means.

On the other hand, if the client company sets out specific and clear terms, and the insurer side accepted the terms and then coordinated on the percentage of insurance coverage and other matters, such a case would not be an immediate problem, according to the JFTC. Nonlife insurers should thoroughly implement in-house education based on the watchdog’s criteria.

In addition, the JFTC has also suggested the option of using an insurance broker — who will select insurers and conduct negotiations from the standpoint of the client company — rather than contracting through one insurer who acts as the organizer, a system that played a key role in prearranging premiums.

It is hoped that the Financial Services Agency will consider measures to encourage companies to adopt this system. It is important for the nonlife insurance industry as a whole to work together to devise reform plans for coinsurance contracts.

(From The Yomiuri Shimbun, Nov. 10, 2024)