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November 16, 2007
Financial Services Agency

Administrative Action against ALICO Japan

  • 1.  As of October 19, 2007, the following facts were confirmed concerning ALICO Japan (American Life Insurance Company, hereinafter called the ''Branch''), based on the cease and desist order issued by the Japan Fair Trade Commission to the Branch under the Act against Unjustifiable Premiums and Misleading Representation and the report from the Branch which the Agency demanded in response to said order under the Insurance Business Law, Article 200 (1).

    (1) Concerning the cease and desist order issued by the Japan Fair Trade Commission
    During the period approximately from December 2006 to January 2007, the Branch ran advertisements, etc., in ordinary daily newspapers for their product, ''Genki ni Yokubari Hoken.'' In these advertisements, expressions were used that suggested that a lump-sum payment would be made under this insurance scheme should the insured person be diagnosed with intraepithelial neoplasia. In reality, said lump-sum payment, are made only when the insured person is diagnosed with intraepithelial neoplasia and has undergone the prescribed surgery for treatment purposes during his or her hospitalization. Payment would not be made in cases where only a diagnosis of intraepithelial neoplasm is made. Such insurance soliciting, by the use of misleading representation about quality, is in violation of the acts prohibited by the Enforcement Regulations, Article 234 (1-4) under the Insurance Business Law, Article 300 (1-9).
    (2) Issues in addition to the aforementioned (1)
    1. A number of erroneous descriptions were found both in materials used for soliciting purposes at the Branch and in brochures that play a significant role in mail orders, which is the main channel for the Branch's solicitation. Examples of erroneous descriptions include statements that claim ''recurrence and deterioration of pre-existing injuries'' as well as ''disability insurance'' are covered while in fact they are not, while the ''age limit for acceptance'' and the ''amount of insurance payment'' were also incorrectly stated.
    2. Concerning erroneous descriptions in the brochures, 31 such cases occurred during the past five years, upon which 28, 353 policies were signed. Of those, prohibited acts as stipulated under the Insurance Business Law were found for 27 occurrences and 26,588 policies as follows:
      (i) An act of informing policy holders, etc., of a fallacy
      (Insurance Business Law, Article 300 (1-1)):
      23 occurrences and 23,651 policies
      (ii) An act to display information that may mislead policy holders, etc.
      (Insurance Business Law, Article 300 (1-9) and
      Enforcement Regulation, Article 234 (1-4)):
      4 occurrences and 2,937 policies
    3. The Branch treated policy holders, who had been solicited using brochures with the erroneous descriptions described above, in an inappropriate manner, as exemplified by the following incidents:
      (i) The Branch demanded that policy holders who entered into the contract based on the brochures that contained erroneous descriptions that the ''recurrence and deterioration of pre-existing injuries,'' which are in fact not covered by the insurance, are covered, to submit after the fact a confirmation note that states, ''it was confirmed that the 'recurrence and deterioration of pre-existing injuries' falls outside of the scope of the insurance payment.''
      (ii) Concerning the aforementioned erroneous description, when a policy holder, having been admitted to a hospital as a result of pre-existing injury, claimed insurance, the Branch cancelled the insurance contract without any payments on the grounds that ''it was not covered under the clause.''
    4. In addition, the Branch was not aware of the above-mentioned violation of law caused by the erroneous description in the brochures and did not report such misconduct to the authority as required under the Insurance Business Law, Article 209 (1-9); thus it was in violation of said Law.

  • 2.  In mail orders, the accuracy of brochures is of the utmost importance as the client studies the brochure sent by the insurance company before making a decision to take out the insurance. Despite the fact the Branch uses mail orders as its main channel for solicitation, the erroneous description within the brochures was made repeatedly for the reasons described below. Furthermore, acts in violation of the law were conducted and inappropriate responses were made that fail to recognize the protection of policyholders. Thus, the system of governance and the business administration system at the Branch were found to be inappropriate.

    (1) The management of the Branch had received a report concerning the erroneous descriptions in the materials for soliciting sales such as brochures and was aware of this for some time. However, the management failed to recognize the descriptions' significance and failed to issue any fundamental measures for improvement. Furthermore, no effective internal audit had been made on the materials for soliciting sales.
    (2) There is no structure in place to inform the payment department, etc., of the erroneous descriptions in the solicitation materials.
    (3) Appropriate measures were not discussed with a view to dealing with clients who entered into the contract based on the solicitation materials that contain erroneous descriptions.

  • 3.  Based on the reasons stated above, a Business Improvement Order was issued today to the Branch under the Insurance Business Law, Article 204 (1) as follows:

    (1) System for preparation and auditing of materials for soliciting sales (advertisements, brochures, etc.) and the business administration system are to be fundamentally improved.
    1. Concerning the materials for soliciting sales, the preparation and audit system is to be fundamentally improved to ensure easy-to-understand and appropriate descriptions for clients that suit the nature of mail order services.
    2. A business administration system that contributes to customer protection is to be established (including handling of existing policyholders who entered a contract based on solicitation materials that contain erroneous descriptions).
    (2) Compliance, governance and internal audit systems are to be improved and strengthened to fulfill their functions.
    1. An effective compliance system is to be established.
    2. The governance system is to be improved and strengthened to ensure an appropriate business administration system.
    3. An effective internal audit system is to be established.
    (3) Responsibilities of executives and employees concerning the issues leading to the above business improvement order are to be clarified.
    (4) Pertaining to the above items (1) through (3), a business improvement plan that includes concrete measures and timing for execution is to be submitted by Monday, December 17, 2007. In formulating such an improvement plan, the issues are to be reviewed from a company-wide viewpoint and a system to execute the plan and the assignment of responsibilities are to be clearly specified.
    (5) Until the implementation of the business improvement plan is fully carried out, a summary outlining the progress and execution of the plan and the improvement status is to be submitted every three months for six months after the submission of the improvement plan with subsequent reports every six months thereafter.

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Financial Services Agency
Tel: 03-3506-6000 (main)
Supervisory Bureau, Insurance Business Division (ext. 3740, 3343)

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