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Chairman’s Statement on the Postal Privatization Committee’s Observation on Future Postal Privatization
25 December, 2015
On 25 December, The Postal Privatization Committee (the Committee) released the "Observation on Future Postal Privatization" (the Observation). In the course of its deliberation process, from the perspective that an appropriate balance should be taken between the enhancement of the Japan Post Group’s stock valuations and the sound development of the life insurance market, the Life Insurance Association of Japan, LIAJ had submitted its comments on 3 August, and expressed its opinion at the hearing conducted by the Postal Privatization Committee on 27 August, as follows.
▶ In advancing the Postal Privatization, it is essential that Japan Post Holdings and the other private life insurers recognize, and when appropriate, make use of each other’s strengths.
▶ We recognize that construction of such friendly relationships would lead to the medium- to long-term benefit to the consumers and the sound development of the life insurance market.
▶ However, considering the virtual government ownership of JP Insurance and the lack of specific plans for its complete privatization, the "level playing field" is not ensured. Therefore, we can never agree to any easing of restrictions on the business, including the increase in the cap on the amount of insurance coverage of JP Insurance.
In the released Observation, the Committee showed the basic direction of future business model of the Japan Post Insurance (JP Insurance) to focus on "petty and simple life insurance products" and, in order to accommodate the needs for a large insurance protection in the occupational insurance market, to "introduce other private insurers' products as complements." The Committee also stated its position not to raise "the current cap of 10 million yen on the amount of JP Insurance’s basic policy for the foreseeable future." These are consistent with our opinions so far.
On the other hand, the Committee also expressed that the cap on the amount of additional coverage, which is allowed after four years from the date of conclusion, will be raised to 10 million yen from current 3 million yen and, as the result, the cap on the amount of total coverage will be raised to 20 million yen. As policies with coverage up to 10 million yen account for more than 70 percent of life insurance policies underwritten in Japan, the suggested cap on the amount of total coverage of 20 million yen is far beyond the scope of "petty" life insurance. We believe that the raise will change the landscape of the market and will lead to a squeeze on other private insurers’ businesses by impairing the friendly relationship between JP Insurance and other private insurers that primarily focus on products with larger insurance coverage.
The Observation also refers to the proper risk management for policies without a medical examination to justify the raise. However, the Committee’s discussion lacks due consideration for other factors. When additional coverage of 3 million yen was approved, there was a series of discussions that took into account various factors such as the ensuring of level playing field with private firms which provide similar products and the inflation rate, as well as proper risk management for policies without a medical examination. In our recognition, the appropriateness of the total cap of the amount of 13 million yen (total of basic policy and additional coverage) and the limitation for four years after the conclusion were carefully assessed before those were finally determined.
Moreover, the Observation mentions "gradual easing of restrictions on the business", in addition to the increase in the cap amount. We believe that this needs to be preceded by the complete disposal of the JP Insurance’s shares, compliant with the Postal Service Privatization Act stating that "regarding the two postal financial institutions’ shares, for the complete disposal of the shares (snip) JP Holdings shall strive to dispose of all shares as soon as possible," this should be on the premise of complete disposal of the JP Insurance’s shares.
Even though the JP Insurance has been listed, nearly 90 percent of its shares are still held by the Japanese government and, additionally, the specific schedule for the complete privatization has not been announced yet. The "level playing field" is thus not ensured in the existing conditions. Moreover, while the Postal Privatization Committee has expressed its focus on the customers’ convenience as the basis for regulation on the JP Insurance’s business, it has not specified any convenience that the cap on the amount of insurance coverage of JP Insurance would bring to the customers.
We find it extremely regrettable that the Postal Privatization Committee has expressed its vision to consider further easing in the future as well as the temporary actions, without appropriately disclosing the process of deliberation to reach the conclusion at the Committee.
We strongly request that future deliberations be made in a fair, neutral and careful manner, taking into consideration following points.
▶ In carrying out discussions on "gradual easing of restrictions on the business" that has been mentioned in this Observation, concrete action plans should be specified publicly to eliminate the virtual government ownership of JP Insurance, such as by setting an appropriate time limit for the complete disposal of JP Insurance shares, which needs to precede the "gradual easing."
▶ When the JP Insurance is to increase the cap on the amount of coverage based on the current underwriting practice that does not apply medical examinations, it should review the appropriateness of its systems in place again, such as criteria for underwriting that takes into account customers’ characteristics.
The Life Insurance Association of Japan