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Japan - New rules for solicitation of insurance policies

Source: Asia Insurance Review | Mar 2016

By Messrs Shinichi Takahashi, Partner, Keita Yamamoto, Counsel, and Yoshihide Matsushita, Associate, at Nishimura & Asahi, Tokyo
The recent amendment of the Insurance Business Act of Japan and related regulations (the “IBA Regulations”) imposes new rules regarding insurance solicitation.
Multi-tied agents
There are two types of insurance intermediaries in Japan: (i) insurance agents who act on behalf of insurance companies, and (ii) insurance brokers who act on behalf of clients. 
   Insurance agents are further divided into two groups: (i-a) single-tied agents who sell insurance policies provided by one insurer exclusively, and (i-b) multi-tied agents who sell insurance policies provided by more than one insurer. The IBA Regulations have introduced new regulations on multi-tied agents which will come into force on May 29, 2016.
   Recently, multi-tied agents have often professed to be “impartial and neutral” advisers to clients when in fact there have been cases in which some have recommended insurance policies from which they derive greater benefits, such as policies involving a high commission and policies provided by an insurer who has a financial interest in the multi-tied agent. 
   Concerns have been raised about a lack of transparency in the sales processes of multi-tied agents and, further, that multi-tied agents have been known to make misleading representations suggesting they are acting for clients rather than insurance providers. The purpose of this amendment is to address these concerns.
Agents must be transparent in selection of insurance policy
Under the IBA Regulations, multi-tied agents are required to explain why they are recommending certain insurance policies above others which are available to them. 
   There are two ways to select an insurance policy. One is to select a policy in line with the client’s stated needs. In this case, multi-tied agents should select insurance policies which are aligned with the stated needs of the clients from the insurance policies they handle, and explain how the recommended policies fulfil the client’s requirements. 
   For example, if clients request a life insurance policy with a low premium, multi-tied agents should select a low premium life insurance policy from the products they handle. 
   The other is to select insurance policies based on their own interests. In that case, multi-tied agents may recommend insurance policies regardless of the client’s requirements, but should frankly disclose to the clients why they have recommended such products. 
   For example, if the multi-tied agent’s policy selection is motivated by a financial interest held by the insurer, or a high commission, this must be disclosed to the client.
   Please note that the above rule does not apply to insurance brokers who act on behalf of clients. Insurance brokers have a fiduciary duty to provide the best advice to the clients. Therefore, they must not select policies based on their self-interest.
Insurance telemarketing
New Guidelines for Insurance Companies have been in effect since May 27, 2015, in addition to the IBA Regulations, and cover solicitations by telemarketing channels.
   These require insurance companies and intermediaries engaging in telemarketing solicitation to establish solicitation procedures, including measures to address anticipated problems that may arise when dealing with clients who are solicited via telephone, and to identify problems at an early stage, as well as to provide appropriate education, control, and guidance to the persons who are making phone calls.
   Further, insurance intermediaries utilising telemarketing should be focused on (a) establishing a script for the discussion, (b) ensuring there is a Do-Not-Call registry, (c) recording telephone conversations, (d) analysing the reasons for complaints and sharing measures to prevent complaints with the persons who are making phone calls, and (e) monitoring of conversations by personnel who were not a party to such conversations with a view to implementing appropriate measures to address any problems identified by the monitoring.
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