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Deregulation of insurance brokers and overseas subsidiaries of insurers

Source: Asia Insurance Review | Feb 2015

The amendment of the Insurance Business Act of Japan (the “IBA”) and related regulations (the “Regulations”) regarding the deregulation of insurance brokers and deregulation of overseas subsidiaries of insurance companies were passed in the Japanese Diet on May 23, 2014, and enforced on August 29, 2014 and November 28, 2014, respectively (collectively or individually the “Amendment”).
(1) Deregulation of insurance brokers
The regulations for insurance brokers were relaxed in two main ways.
Under the previous regulations, when an insurance broker intended to act as an intermediary in concluding a long-term insurance contract (a contract of more than five years’ duration) to which a policyholder or an insured was a party, it had to obtain authorisation from the Prime Minister. However the new regulations abolished such requirement. It should be noted that the registration system (requiring all insurance brokers to obtain registration) has been maintained.
Secondly, the previous regulations required an insurance broker to lodge a security deposit (the “Security Deposit”, the amount of which was in principle determined according to the total amount of fee, remuneration or other consideration received by the insurance broker in connection with the brokerage for the conclusion of insurance contracts in a specified period) of at least JPY40,000,000 (US$337,700) with the deposit office located nearest to its principal office.
Under the new regulations, the minimum Security Deposit was lowered to JPY20,000,000.
In the past, insurance agents entrusted by insurance companies played a central role in insurance solicitation in Japan. In order to diversify the channel of insurance solicitation in Japan, a system using insurance brokers was introduced in the amendment of the Regulations in 1995. However, the system was underutilised; therefore, the amendment in 2014 aimed at promoting new entries into the insurance broker business.
(2) Deregulation of overseas subsidiaries
Previously, under the Regulations, insurance companies could not have subsidiaries other than companies falling under the category of “companies eligible to be subsidiaries” (kogaisha-taisho-gaisha). 
Such companies eligible to be subsidiaries were limited to certain types of companies, such as insurance companies, banks, securities companies and companies engaging in business subordinated to financial business.
After the amendment of the Regulations on July 20, 2012, which was intended to facilitate the acquisition of foreign insurers by Japanese insurance companies, insurance companies were exceptionally allowed to have a foreign company that had a subsidiary company other than a company eligible to be a subsidiary, as a subsidiary, but only if the foreign company conducted insurance business.
Under the 2014 Amendment, the exceptions to the limitation on insurance companies’ subsidiaries have been broadened, and consequently, insurance companies may also have a foreign institution that has a foreign subsidiary not falling within a company eligible to be a subsidiary, as a subsidiary if the foreign institution engages in banking, securities services, trust business, investment management business, etc, as well as insurance business. This broadening in scope allows Japanese insurance companies to have greater flexibility in expanding overseas.
However, please note that, in any such exceptional case, the relevant insurance company must take necessary measures to ensure that such foreign company that is not a company eligible to be a subsidiary ceases being its subsidiary within five years from the date on which it came to have such foreign company as a subsidiary.
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