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The Financial Services Agency will urge financial institutions selling foreign currency-denominated insurance to reinforce efforts to protect their customers, as an increasing number of senior citizens are experiencing problems after signing contracts without fully understanding the products.
Financial institutions will be asked to present not only investment yields but also comprehensive earnings forecasts, taking into account commissions and expenses associated with insurance cancellations, at the time of sale.
The FSA will soon announce a specific method of calculating earnings forecasts and others. Each bank will present such information on a uniform basis to make it easier for policyholders to recognize risks and compare financial products.
Similar efforts are already being made in the field of investment trusts.
In foreign currency-denominated insurance, policyholders pay the premiums in yen and insurance companies invest the money in dollar- or other foreign currency-denominated assets.
With interest on deposits falling to almost zero, banks and other financial institutions are increasingly selling the products as asset management instruments. But because they are insurance products, which pay out in the event of a policyholder’s death or expiration of the contract period, there is a wide range of customers that includes senior citizens.
However, this kind of insurance carries a risk of loss of principal if the yen appreciates after the time of signing the contract, or if the contract is canceled earlier than the contract period.
An FSA survey of 34 major banks found that 40% of their policyholders had seen a decline in the value of their policies. In nearly 10% of the contracts, the appraised value had fallen by at least 10%.
According to the Life Insurance Association of Japan, there were 1,866 complaints about foreign currency-denominated insurance in fiscal 2020.
In April, the association will start a new system to limit sales of the products to registered insurance salespeople who have passed an exam.
