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Misconduct has emerged among major nonlife insurance companies largely because competition has been distorted by cozy business relations as an oligopoly takes hold.
Legal revision must be an opportunity to extirpate long-standing corruption and return to a customer-oriented approach.
The Financial Services Agency (FSA) plans to submit to the current Diet session a bill to revise the Insurance Business Law. The company formerly known as Bigmotor Co., a major used car dealer, padded the cost of repairs when it billed nonlife insurers, but there are currently no clear provisions for administrative punishments under the law, which led to delayed action by the FSA.
Based on this reconsideration, the revised law will clarify that padding claims is an act subject to penalties, such as a business suspension order, and will strengthen the monitoring system.
Regarding the problem of a price cartel in insurance for corporate clients, the revised law will prohibit excessive favors, over which there is concern that such behavior could undermine fair competition.
In light of the purpose of the revised law, nonlife insurers and insurance agents need to thoroughly raise awareness in their workplaces to ensure maximum respect for the interests of their clients.
By the mid-2010s, the nonlife insurance industry had been reorganized into four major companies, including Tokio Marine & Nichido Fire Insurance Co. and Sompo Japan Insurance Inc. As a system of oligopoly has been established, businesses have sought to secure profits through cozy relations, rather than through fair competition based on product quality and pricing.
This misconduct is being driven by a mindset that only pursues an improvement in the performance of one’s own company and disregards clients’ interests.
When Bigmotor, which also operated as an insurance broker, received orders from customers to repair automobiles, its employees intentionally damaged the vehicles, among other acts, to pad the repair bills when filing claims with nonlife insurers.
While the broker would see higher profits, nonlife insurers would act to raise premiums so their earnings would not deteriorate, and as a result, only the customer side would suffer a disadvantage, it was pointed out.
As for the price cartel issue, too, employees of nonlife insurers competed to purchase services and products from the companies that they tried to sell insurance policies to, among other actions. This excess of favors was said to have influenced the sales performance of insurance policies.
Clients, in this respect, also had to purchase overpriced insurance policies.
Excessive favors have also been a problem when car dealers and others have served as insurance brokers.
Brokers are a powerful means by which nonlife insurers obtain insurance contracts. Nonlife insurance employees are said to have had sales of their own companies’ insurance prioritized in return for helping brokers with events and other matters.
The FSA intends to review insurance sales rules to promote healthy competition, and plans to urge nonlife insurers to recommend desirable products for clients. The insurers will also be tested as to whether they will work to compete with each other by differentiating the content of their products.
