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The LIAJ's Comments on the Postal Services Privatization Committee on Privatization of Postal Services
3 October, 2014
The Life Insurance Association of Japan (LIAJ) has repeatedly argued that, in order to develop a sound life insurance market, we cannot agree to any increase in the cap on the amount of insurance coverage and any expansion of business scope of Japan Post Insurance (JP Insurance) without “ensuring a level playing field” in order not to impede proper competition with private firms which provide similar services, and without “having an appropriate system in place” in terms of underwriting and payouts.
In response to the Postal Services Privatization Committee's call for comments on privatization of postal services, the LIAJ submitted comments regarding our views on past efforts and our expectations for the privatization as follows.
1. Disposal of JP Insurance shares
Under the Postal Services Privatization Act, it is provided that “Japan Post Holdings (JP Holdings) shall strive to dispose of all shares as soon as possible for the complete disposal of shares.” Besides, an additional resolution adopted by the House of Councilors states that “JP Holdings shall seek to deliver promptly and concretely on its specific accountability for the complete disposal of shares.”
In this context, the government's Fiscal System Council issued a report on disposal of JP Holdings shares on June 5, 2014, and we recognize it as an important first step in working toward the steady realization of listing of JP Insurance. Nevertheless, we have a concern that its vision or concrete schedule for the complete disposal of its shares is not specifically indicated in the report on the other hand.
According to the National Survey on Life Insurance, conducted by the Japan Institute of Life Insurance in FY2012, approximately 30% of the respondents who would purchase policies of JP Insurance cited as the reasons to choose JP Insurance that “the indirect shareholding by the government provides extra reassurance,” and that “it has a tradition as a state enterprise.”
Given that the credit capability generally creates competitive advantage in the financial services business, we are concerned that permanent indirect government ownership of JP Insurance can impede a “level playing field” since consumers may believe that the government will eventually provide some kind of support.
Therefore, in accordance with the Postal Services Privatization Act, JP Holdings should indicate concrete action plans to eliminate the virtual government ownership of JP Insurance and carry out them, such as by setting an appropriate time limit for the complete disposal of JP Insurance shares.
2. Impacts on the private sector
In our comments on the Observation on the Deliberation of the Postal Privatization Committee regarding the improvement of JP Insurance's education endowment insurance for children, we argued that we cannot agree to any improvements of the education endowment insurance products unless "a level playing field" is ensured. However, the Postal Services Privatization Committee published a report stating that "there is no possible concern on the improvement of education endowment insurance," and JP Insurance started selling a new type of education endowment insurance products from April 2014, with the approval of the supervisory authority.
Looking into the sales of education endowment insurance products in the first quarter of FY2014, while the sales of education endowment insurance contracts of all private life insurance companies (excluding JP Insurance) was approximately 80 thousands (87% on a year-over-year [y/y] basis), that of JP Insurance reached approximately 190 thousands (415% y/y). Besides, the market share of JP Insurance in this area significantly increased from 34% to 71%.
On the other hand, in terms of the amount of insurance coverage for individual insurance contracts, the average amount of new business in individual life insurance per contract decreased to about 5.25 million yen in private life insurance companies (excl. JP Insurance) in FY2012. Given this situation, competitions are becoming intensifying between private life insurance companies and JP Insurance although there is a cap of 10 million yen on the amount of insurance coverage for insurance products of JP Insurance.
Considering these factors, we are concerned that any increase in the cap on the amount of insurance coverage and any expansion of business scope of JP Insurance without "ensuring a level playing field" or "having an appropriate system in place" in terms of underwriting and payouts can bring significant impacts on business management of private life insurance companies, which may bring further pressures on the private sector. It may also have impacts on sound management of JP Insurance as well as consumer protection. Therefore, we believe that any increase in the cap on the amount of insurance coverage and any expansion of business scope of JP Insurance should not be allowed unless "a level playing filed" is ensured and "an appropriate system" is put in place.
Besides, the Japan Post Privatization Act states that "matters that may impact on proper competition with other private life insurance companies" will be considered for the approval of any new services. In light of this Act, we expect that possible impacts on business management of the private sector and on market share will be sufficiently taken into account and verified from the fair and impartial standpoint.