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The LIAJ Responds to the Call for Input by the Postal Privatization Committee for deliberating its advice on the New Businesses by Japan Post Insurance(e.g. Launch of Redesigned Whole-life Insurance)
25 April, 2017
On 31 March, Japan Post Insurance (JP Insurance) filed applications to the Financial Services Agency and the Ministry of Internal Affairs and Communications for approval of its new businesses including launch of redesigned (1) whole-life insurance, (2) term annuity insurance and (3) hospitalization rider. On the same day, the LIAJ restated its position through the Chairman’s comment urging adequate and careful deliberation by the Postal Privatization Committee (the Committee) in advising the Financial Services Agency and the Ministry of Internal Affairs and Communications on the new businesses by JP Insurance.
In response to the Committee’s call for input for deliberating its advice on the new businesses by JP Insurance including launch of redesigned whole-Life insurance product, the LIAJ made its stand as follows on the new business by JP Insurance, bearing in mind the empirical analysis based on the consequence of the launch of redesigned educational endowment insurance by JP Insurance.
(Influence of the launch of redesigned educational endowment insurance product)
In September 2012, the LIAJ responded to the call for input on the new business with the redesigned educational endowment insurance, arguing that we cannot agree to give approval to the launch of redesigned education endowment insurance product unless a level playing field is ensured, as redesigning of the product was intended to decrease the insurance premium by limiting the death benefit to the amount of paid-up insurance premium and thus the new business would have a serious consequence on the businesses of private life insurers.
In spite of our opposition, finally an approval was granted for the launch of new business with the redesigned educational endowment insurance in April 2014. Private life insurers in competition with the JP Insurance also launched newly designed endowment insurance products; however, the JP Insurance expanded its market share from 31.6% in fiscal 2013 to 65.8% in fiscal 2014. In fiscal 2015, it amounted to 57.1%.
This expansion of JP Insurance’s market share was larger than anticipated, exceeding the JP Insurance’s expectation of 41% as the result of the launch of redesigned product. The LIAJ believes this demonstrates that JP Insurance’s new business with the redesigned educational endowment insurance product actually affected competition with private life insurers.
(Launch of redesigned whole-life insurance product)
Proposed redesigning of whole-life insurance product intends to decrease insurance premium, similarly to the previous redesigning of educational endowment insurance, by lowering the surrender value during the accumulation period and by applying expected surrender rate.
Considering the abovementioned experience with the launch of redesigned educational endowment insurance, the LIAJ believes that proposed redesigning would affect the whole-life insurance market, and disrupt the competition.
(Launch of redesigned term annuity insurance product)
Proposed redesigning of term annuity insurance product intends to decrease insurance premium, similarly to the previous redesigning of educational endowment insurance, by lowering the surrender value during the accumulation period and by applying expected surrender rate.
It also includes the introduction of tontine feature (a framework where reserves at the time of policyholders’ death are re-distributed to reserves for payment of annuity for policyholders alive), providing the product with a distinct function as an individual annuity product to prepare for longevity risk. In this context, the redesigned product should be identified as a different type of product from the products that functions as a means to enable certain savings in each of the cases of death, surrender and pension payouts.
Additionally, age at entry will be expanded to 50-70 from current 45-62 and annuity will be paid up to the age of 100 (currently 75), expanding the annuity period by 25 years. As such, we understand that JP Insurance intends to entry into the silver market, which was not included in the targeted markets for the existing product.
Therefore, the LIAJ believes the redesigned term annuity insurance product goes beyond the horizon of existing product and should be recognized as a brand-new product. We believe the launch of such brand-new product will have an even more significant effect on the term annuity insurance market than that of the redesigned whole-life insurance product on its market, and disrupt the competition.
The LIAJ has repeatedly argued that it is inevitable for any expansion of business scope of JP Insurance that a level playing field to accommodate fair competition between JP Insurance and private firms is ensured and that adequateness of JP Insurance’s business management arrangement is demonstrated. Under the circumstances where virtual government ownership of JP Insurance is not dissolved, and yet even a specific plan for completion of its privatization is not announced, there is no chance to be recognized as to have the a level playing field to accommodate fair competition with private firms.
The Postal Service Privatization Act provides that factors that affects level playing field with other life insurers should be taken into consideration in deliberating whether to approve the proposed new business (Article 138, Paragraph 4). As level playing field has not been ensured, we can never agree with the launch of new businesses by JP Insurance with the redesigned whole-life insurance and term annuity insurance products that would have a significant effect on the competition with other private life insurers.
The LIAJ would strongly request the Committee to pay due consideration to our input and to make adequate and careful deliberation as an independent body with fair and neutral point of view, bearing in mind how they can foster development of the life insurance market as a result of sound market competition among the life insurance sector.
The Life Insurance Association of Japan