(Provisional Translation)
March 14, 2007
Financial Services Agency
Government of Japan

Administrative Actions Against Ten Non-Life Insurance Companies

1. As of July 14, 2006, the Financial Services Agency (FSA) demanded that all non-life insurance companies (48 companies) submit reports concerning the non-payment of insurance claims payable for tertiary products for the last five years (July 2001 - June 2006) under Article 128 of the Insurance Business Law, (among others). In response, all the non-life insurance companies concerned submitted reports at the end of October 2006.
   
   Each report was examined by the FSA and, as a result, inappropriate non-payments of insurance claims were found in the cases of 21 companies. For ten companies out of the 21, common serious problems were found with regard to their insurance payment control systems, where the number of cases of inappropriate non-payment of insurance claims was high (3,585 cases, or 1.07 billion yen in total among the 10 companies).

   * The tertiary products concerned constitute health insurance, cancer insurance, income indemnity insurance, medical expense insurance, nursing-care expense insurance, etc., (excluding overseas travel accident insurance). Also included are special contracts tied to other forms of insurance that pay out insurance on the grounds of illness or nursing requirements.

   1. Examples of inappropriate non-payment of insurance claims by the ten companies, which were identified as a result of the reports, are as follows.

      * The number of cases and percentages in brackets show the total number of cases among the ten companies and the percentages of the total.

      (1)	Concerning illnesses incurred prior to the commencement of the insurance (hereinafter called ''pre-existing illnesses''), insurance companies are exempted from responsibility by their terms and conditions provided the illness in question has been certified by a doctor as being a pre-existing condition. Cases were identified where the exemption was applied inappropriately, such as a case wherein an employee made such an assessment without a doctor's diagnosis. [1,213 cases/34%]
      (2)	Cases were identified wherein appropriate payment was not made on the grounds that is constituted a breach of the duty of the discloser. In one such case, payment was not made on the grounds of non-disclosure despite no causal connection between the medical history that the policyholder did not disclose at the time at which they took out the insurance contract and the cause for the insurance claim. There were also examples of insurance companies terminating contracts after the exclusion period. [1,210 cases/34%]
      (3)	There were cases of inappropriate applications for special contracts, etc., wherein employees mistakenly believed that certain policies had special contracts that excluded specified illnesses from coverage, despite the non-existence of such special contracts. [252 cases/7%]
      (4)	There were other cases wherein payments were not made on the grounds that the client concerned had expressed their intention to dismiss a claim, but the situation could not be verified. [910 cases/25%]

      
      These have been confirmed cases wherein insurance claims payment operations were not conducted appropriately as stipulated in the Business and Service Documents under the Insurance Business Law, Article 4 (2-2) and the General Insurance Conditions under item 3 of the same paragraph.
   2. The following common causes were identified by companies that incurred inappropriate non-payments:

      (1)	Inadequate payment assessment manuals, etc., that do not take into account the characteristic elements of tertiary products (such as assessment of a ''pre-existing illness'' or accreditation of a ''health condition disclosure'') were used. Accreditation standards and procedures for non-payment were not established and payment judgment was largely left to the discretion of the individuals responsible.
      (2)	In interpreting the clauses and creating a payment assessment manual, etc., cooperation between the product development division and payment control division was insufficient. As a result, appropriate administrative exchange in consideration of the product characteristics was not sufficiently established.
      (3)	Training, education and guidance that take into account the characteristics of tertiary products were insufficient. Furthermore, as a result of the insufficient training of the persons in charge of payment assessment, payment operations were carried out by persons in charge who lacked sufficient understanding of the products in question.
      (4)	The verification process of the non-payment cases carried out by the insurance claims payment control division, etc., did not take into account the characteristics of tertiary products, and hence did not fully carry out its functions. Furthermore, verification and improvement of operations via analyses of complaints were also not carried out adequately. Thus, after-the-fact examination did not function in a satisfactory manner.
      (5)	Internal audits to examine the non-payment of tertiary products did not function fully. Thus, the internal audit division did not have a full understanding of the fact that many inappropriate non-payments of insurance claims had occurred.
      (6)	The management did not grasp the seriousness of the situation wherein many cases of inappropriate non-payment of insurance claims had occurred due to insufficient recognition of the characteristics of tertiary products.

2. Based on the above facts, as well as current conditions and characteristics regarding non-payment, which differ from company to company, the FSA today implemented administrative actions against each of the following non-life insurance companies under Articles 132 (1) and 204 (1) of the Insurance Business Law.
   • Concerning Tokio Marine & Nichido Fire Insurance Co., Ltd and NIPPONKOA Insurance Co., Ltd., the following infringements have been identified, and therefore suspension and business improvement orders 1, 2 (1), 3, 4, 5, 6, 7, 8 and 9 have been issued.
     • Gravity of inappropriate non-payment, etc.
       • The number of cases and amount of non-payment of insurance claims were especially high and the harm caused to policyholders was very serious.
       • Furthermore, non-payment of insurance claims has occurred continuously over the last five years, showing a strong repetitive nature.
     • The appropriateness of governance and business operations systems
       • Serious issues have occurred concerning the compliance system, including an extremely high number of cases of non-payment due to handling that violated the terms and conditions thereof. Despite the occurrence of such situations, the relevant divisions of the company concerned, including the internal audit division, were not aware of the occurrence of these issues. Management was also not aware of the non-payment issue.
     • Reasons for alleviation, etc.
       • Since the recognition of the issue last summer, consistent business improvements have been being introduced, including the preparation of regulations and manuals, as well as enhancement of a system for examining cases of non-payment.
   • Concerning Aioi Insurance Co., Ltd., The Fuji Fire and Marine Insurance Co., Ltd., Kyoei Fire & Marine Insurance Co., Ltd. and Nisshin Fire & Marine Insurance Co., Ltd., the following infringements have been identified, and therefore suspension and business improvement orders 2 (2), 3, 4, 5, 6, 7, 8 and 9 have been issued.
     • Gravity of inappropriate non-payments
       • A high number of cases of non-payment of insurance claims occurred and the harm caused to policyholders was serious.
       • Furthermore, non-payment of insurance claims occurred continuously or intermittently over the last five years, showing a repetitive nature.
     • The appropriateness of governance and business operations systems
       • There were significant flaws in the insurance payment control system, including insufficient fostering of persons responsible for insurance payment.
       • Furthermore, management was not aware of the occurrence of non-payment issue.
     • Reasons for alleviation
       • Since the recognition of the issue last summer, consistent business improvements have been being introduced, including the preparation of regulations and manuals as well as enhancement of a system for examining cases of non-payment.
   • Concerning Nissay Dowa General Insurance Co., Ltd., Hitachi Capital Insurance Corporation, American Home Assurance Company and AIU Insurance Company, suspension and business improvement orders 3, 4, 5, 6, 8 and 9 have been issued.
     • Gravity of inappropriate non-payment
       • A considerable number of non-payment of insurance claims occurred and harm has been caused to policyholders.
     • The appropriateness of governance and business operations systems
       • The insurance payment control system did not consistently function fully.
     • Reasons for alleviation
       • Since the recognition of the issue in the summer last year, consistent business improvements have been being introduced, including the establishment of regulations and manuals as well as enhancement of the system for examining cases of non-payment.
   1. Signing of new insurance contracts and insurance soliciting activities concerning tertiary products are to be suspended. (Contracts that are renewed automatically are excluded.)

      Period: From April 2 (Mon) to July 1 (Sun) 2007 (3 months)

   2. All operations concerning application for approval of new tertiary products, reporting of revision of existing tertiary products and application for approval of agency operations for financial institutions including other insurance companies, etc. are to be suspended.

      (1) Period: From March 15 (Thu) to June 14 (Thu) 2007 (3 months)

      (2) Period: From March 15 (Thu) to April 14 (Sat) 2007 (one month)

   3. Governance system is to be improved and strengthened.(1) A system wherein management is engaged in establishing an appropriate business administration system that will prevent the occurrence of inappropriate non-payment of insurance claims is to be established.

      (2) Concerning issues of non-payment of insurance claims, an effective internal audit system to appropriately grasp the current status and implement improvements is to be established.

   4. The system of insurance claims payment control is to be improved and strengthened.

      (1) An insurance payment control system concerning tertiary products, including establishment of a fair and accurate assessment structure and process, is to be developed.

      (2) All operations concerning customer handling, including the insurance soliciting business and insurance claim payment operations regarding tertiary products are to be verified and reviews and improvements of rules and manuals that are necessary for appropriate business operations are to be carried out.

      (3) Assurances are to be made that persons involved in payment administration for tertiary products are thoroughly trained.

      (4) A system for prompt and appropriate customer handling concerning inappropriate non-payment of insurance claims that have been uncovered is to be established.

   5. Policyholders are to be protected and convenient usage of products thereby is to be improved and enhanced.

      (1) A management system that ensures appropriate conducting of insurance soliciting by employees and agents and the provision of explanations to customers concerning tertiary products is to be established.

      (2) An effective system that enables post-sale, after-the-fact verification, including complaints is to be established.

      (3) Transparency, including information regarding complaints, is to be promoted.

   6. Compliance systems are to be improved and strengthened.

      (1) Compliance systems are to be reviewed and improved.

      (2) Thorough training and regular follow-up training is to be conducted in order to foster a compliant corporate culture.

   7. Responsibilities of executives and employees concerning the issues that led to the above business suspension order and business improvement order are to be clarified.
   8. Regarding the above items, a business improvement plan that includes concrete measures and timing for execution is to be submitted by Friday, April 13, 2007.
   9. Until the completion of the business improvement plan, reports are to be compiled which summarize the progress and execution of the plan and the improvement status. The first such report is to be submitted by Friday, July 13, 2007, and subsequent reports every six months thereafter.