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Chairman’s Statement on the increase in the cap on the amount of insurance coverage of Japan Post Insurance
29 June, 2015
To invigorate the economy and society by accepting the Japan Post Insurance (JP Insurance) as an equal player among private life insurers and to address the policy issue of allocating funding to the reconstruction from the Great East Japan Earthquake, the LIAJ considers it crucial that JP Insurance successfully accomplishes its planned listing toward its complete privatization. The LIAJ has repeatedly argued that it cannot agree to any increase in the cap on the amount of insurance coverage or any expansion of business scope of JP Insurance without “ensuring a level playing field” for proper competition with private firms, and without “having an appropriate system in place” for underwriting and insurance payouts.
The Liberal Democratic Party's Special Mission Committee on Postal Business recently compiled a “proposal on the provision of services by Japan Post Group upon the listing of its three subsidiaries”. This proposal calls for the cap on the amount of insurance coverage to be increased from 13 million yen at present to 20 million yen by the end of September this year, and that further increases should be considered.
Given that credit capability generally confers a competitive advantage in the financial services industry, we are concerned that virtual government ownership of JP Insurance without specific plans for its complete privatization would not allow a level playing field, as consumers may believe that the government would eventually provide some kind of support. Therefore, we can never agree to any increase in the cap on the amount of insurance coverage or any expansion of business scope of JP Insurance, since it would significantly affect the business management of private life insurers and place further pressure on the private sector.
Also, from the perspectives of risk management and consumer protection in the life insurance industry, appropriate management systems such as those established by private insurers are very important. These include, for example, a system for ensuring appropriate medical selection from technical perspectives by requiring a medical examination of the insured by a doctor upon underwriting policies with insurance coverage that exceeds a certain amount. Since underwriting without appropriate medical selection could cause risks to the management of the insurance business, JP Insurance should take measures to ensure its sound business operation and should not be allowed to increase the cap on the amount of insurance coverage or expand its business scope without first establishing appropriate systems including a system that requires a doctor's report based on an examination.
Currently, Japan Post and JP Insurance are able to enjoy profits while addressing various customer needs by distributing products of private life insurers through their offices across Japan as an agency company, and have thus developed links with multiple private life insurers. To increase the corporate value of Japan Post Group and address the needs of customers of JP Insurance, it is essential that Japan Post Group and private life insurers complement each other by utilizing their respective strengths.
Article 2 of the Postal Service Privatization Act states the basic principle of “take measures to ensure a level playing field with private firms which provide similar services”, and the supplementary resolution attached to the amended Postal Service Privatization Act provides that “the limit on the amount shall not be increased for the time being because the amendment of the Act would not change the circumstances to be taken into consideration.” We strongly request that such deliberations and examinations be made carefully and thoroughly by the authorities concerned and the Postal Privatization Committee in the future, taking these backgrounds into consideration.
The Life Insurance Association of Japan