Getting Rid of Strategic Shareholdings of Insurers

Urged by Financial Services Agency after the scandal of price-fixing, each of the four major non-life insurers in Japan submitted the agency a plan of revising their businesses. They included eliminating strategic shareholdings with client companies, which had been criticized as inappropriate tradition, as well as penalty on the managers. It is paid attention whether those insurers can get rid of the unethical behavior. 

The insurers, Aioi Nissay Dowa Insurance, Sompo Japan Insurance, Tokio Marine & Nichido Fire Insurance and Mitsui Sumitomo Insurance, received business improvement order from FSA last December with anti-competitive activity to keep premiums high. They were suspected as engaged in prior consultations on premiums for joint contracts with corporations.

 

The plan for revision submitted to FSA was the answer for the order. The four insurers decided to impose penalties on one hundred and thirty-two managers as a whole by cutting their salaries. Sompo Japan, having received another business improvement order on the scandal of false payment by Bigmotor Co., reported that its chairman would step down at the end of March.

 

In addition, the four insurers presented their plan to sell out their strategic shareholdings by 2030 or so. The insurers have been holding shares of their clients to keep their relationship with the clients smooth. The strategic shareholdings are long-term possession of the share, distinguished from investment with expectation of price hike or dividends. The total value of strategic shareholdings by those four insurers is ¥6.5 trillion.

 

The four insurers are holding shares of fifty-nine hundred companies. The clients include such carmakers as Toyota, Honda or Suzuki, and major trading companies like Mitsubishi, Mitsui or Itochu. It has been suggested that the more an insurer holds share of a company, the likelier the insurer receive contracts of the company. The system has been criticized by foreign investors as distorting competition in the market.

 

Not only shareholdings, but purchasing services or goods of clients affected business of the insurers. The contracts were determined by how many times the insurer used golf course or hotels of the client. The insurers submitted their plan to improve those kinds of traditional business practices and to establish checking system. Collusion between the insurers and their clients is expected to be eventually eliminated.

 

Revision in internal business system is also required to the insurers. The evaluation of business people has been made with how many contracts the person has achieved. That system may cause excessive or illegal business activities. The evaluation can be made focusing on the process of contracts. Enhancement of the section for checking compliance should be another way to improve their business.

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