Inappropriate Sales By Japan Post Insurance

The revelation that Japan Post Insurance Co., which is under the umbrella of the Japan Post Holdings, has engaged in more than 90,000 cases of inappropriate sales to their customers is the largest scandal to hit the group since the 2007 privatization of the nation’s postal services. Not only should Japan Post Insurance customers be compensated for any damages they sustained, a probe should be carried out to determine what lay behind the dubious practices and steps must be taken to prevent a recurrence of such problems.

The problems in question include roughly 22,000 cases in which customers made double payments on insurance premiums when they switched to new contracts, 47,000 cases in which customers were rendered uninsured when months passed before they signed new contracts after terminating their old ones and 24,000 cases that resulted in other disadvantages for customers. These cases are found to have taken place over the past five years.

Reportedly behind the improper sales were demanding targets set on the sales of insurance products by Japan Post Insurance. In cases in which customers made double payments on their old and new contracts, the salespersons are suspected of getting customers to delay canceling their old contracts for six months after signing the new ones to avoid having the latter classified as a switch-over. This would allow the salespersons to receive more credit for their sales performances. Similarly, customers were left uninsured for months when they were made to delay the signing of new contracts after canceling their old ones because a new contract signed within three months after canceling the old one would also be deemed a switch-over.

Initially, Japan Post Insurance explained that such sales practices were legitimate because the customers had consented to the arrangement. Later on, the presidents of Japan Post Insurance and Japan Post Co. — to which most of the sales of the insurance products are commissioned — both offered apologies at a news conference, saying that they had caused losses for large numbers of customers and damaged their trust. They said they would take steps to refund customers for the double payments and restructure the customers’ contracts to cover the period of time when they were rendered uninsured.

Japan Post President Kunio Yokoyama stated that the “sales targets were out of line with the times,” marked by a changing business environment including ultralow interest rates and a declining population, effectively admitting that the tough sales targets imposed on the salespersons lay behind the problem.

Even after the postal services were privatized into the current Japan Post Holdings group in 2007, its two financial units — Japan Post Bank and Japan Post Insurance — benefited from the creditworthiness of the government, which is the group’s effective parent as its main shareholder. The financial units conduct their business through the network of more than 20,000 post offices across the country, which continue to serve as key social infrastructure in the communities in which they’re located, and can take advantage of the post offices’ broad customer base of some 26.5 million people — or 1 out of 5 people in this country. About 90 percent of the contracts for Japan Post Insurance products are made through post offices.

While the group’s postal service business suffers from falling profitability in the age of the internet, the commission fees from Japan Post Bank and Japan Post Insurance account for a large portion of the entire group’s profits, although they also face an increasingly tough business climate due to the prolonged ultralow interest rates and the nation’s declining population.

It is indeed a serious problem if the Japan Post Insurance products were sold in improper ways that took advantage of the public’s trust in the post office system — and by prioritizing sales targets over the interests of customers.

Japan Post Insurance has said it will set up a third-party panel of experts to look into the scandal. Meanwhile, the Financial Services Agency has ordered the firm to submit a report due to its suspicions that violations of the law on insurance business have taken place if the company’s customers were given false explanations. It’s expected that the FSA will consider administrative penalties.

The probe needs to go deep enough to expose possible structural problems in the management and governance of Japan Post Insurance as well as Japan Post that could be behind the inappropriate sales practices. The results should then be used to enact effective measures to prevent a recurrence of such problems and regain the trust of customers.