Revision of the Japanese Insurance Business Act in 2014. Insurance Distribution Channels in Japan and New Rules on the Solicitation of Insurance
Abstract
In Japan, there are two major Acts on insurance. One is the Insurance Act, enacted in 2008 as the basic law governing insurance contracts. The other is the Insurance Business Act (IBA), which regulates insurance business. The IBA was first enacted in 1900 and was fundamentally revised in 1939. It has served as a framework for the system of insurance business in Japan. Amid the trends of deregulation and internationalization, the IBA was largely revised in 1995 by consolidating three Acts. However, the law regarding the duties of sellers was only minimally revised from its formulation of 1939. To cope with the need to protect consumers, the Financial Services Agency (FSA) strengthened supervision of insurance companies by using “soft law”. The IBA did not specify the duties of sellers in a comprehensive way.
The large number of sellers as well as a variety of sellers in terms of size, expertise and business method may be regarded as the characteristics of the Japanese distribution situation. The number of individuals selling insurance totals more than two million for non-life insurance and one million for life insurance. For general insurance, more than 90% of all insurance premiums are attributable to sales by insurance agents. There are various agents, ranging in form from individuals to large companies. Insurance brokers are active in only a limited area. For life insurance, insurance representatives employed by life insurance companies have been the major channel. However, sales by insurance agents including banks have been increasing since the IBA 1995. In recent years, a new type of insurance agent called a “Raiten-gata shop”, which sells insurance by comparing products of various insurance companies, has been expanding its business both for life and non-life insurance. The emergence of new types of agents necessitated a revision of the IBA.
The IBA was revised in 2014 to reflect the changes in the market and to state the duties in a comprehensive manner. With the 2014 revision, the seller was assigned the duty of providing necessary information on the insurance product, ascertaining the intention of the client, providing insurance in accordance with the clients’ intention and confirming with clients whether the insurance product in question corresponds to this intention. In addition, insurance agents and brokers are required by the IBA to establish a proper management system so as to ensure sound solicitation. The right of the FSA to monitor and inspect intermediaries and their related parties was also enlarged. The FSA has set down very detailed guidelines for the new duties.
This new duty regarding the solicitation process requires a certain procedure to be followed in making an insurance contract, including the preservation of evidence. It is expected that the new rule will facilitate communications between sellers and buyers of insurance and avoid misunderstandings. On the other hand, too much control and overly detailed procedures for making a contract may hamper creativity in the market and increase premiums as a result of the higher costs associated with the conclusion of a contract. As to the duty of management, sellers might increase procedural formalities in the management system. Bearing these adverse effects in mind, regulators need to monitor the level of solicitation closely to determine if the new rules are yielding the expected effect.
