Intensive Screening of Securities Reports for Fiscal Year Ended March 31, 2005


1.
 Overview of Intensive Screening
  Companies whose fiscal year ends on March 31--the most common date chosen for the fiscal year end--are required to respond to a questionnaire regarding information deemed to be significant for disclosure. The questionnaire, which must be submitted to the Local Finance Bureaus, the Fukuoka Local Finance Branch Bureau and the Okinawa General Bureau (hereinafter referred to as ''Local Finance Bureaus, etc.'') by the companies submitting a securities report at the same as the securities report and semiannual report, forms the basis of intensive screening.
Nationwide, 3,335 companies that submitted their respective securities reports for the fiscal year ended March 31, 2005 (submission deadline: June 30, 2005) were intensively screened by the Local Finance Bureaus, etc., having jurisdiction over the disclosing companies, with respect to the disclosure status of two items: (1) the corporate governance situation; and (2) information on the parent company, etc., of the company submitting securities reports.

2.
 Summary of Screening Results
  Companies deemed to have given inappropriate statements as a result of the screening conducted by the Local Finance Bureaus, etc., were urged to correct the statements. As a result, a corrected report was submitted by 167 companies.
Typical examples of inappropriate statements found as a result of the intensive screening are shown below.
 
(1) Corporate Governance Situation
 
Item Description
1 The organization for internal audit and auditors' audit is not described even though there is such an organization.
The organization for internal audit and auditors' audit is described but the staff and/or audit procedures are not.
Internal audit, auditors' audit and accounting audit are coordinated as necessary but there is no description of such coordination.
2 There is no description of any outside director or outside auditor with personal, equity, business or other stakeholding relationships despite the existence of such director and auditor.
3 The name of the Certified Public Accountant (CPA) who performed the auditing tasks is not provided. The name of the auditing firm to which he/she belongs is not provided.
The screening system is not described in cases where an audit certificate is provided by an individual CPA.
There is no description of auditing assistants even if there are such assistants.
There are accounting auditors who have engaged in audit-related work continuously for more than seven years but there is no description of the number of years in which they were involved in audits.
 
(2)
 Information on Parent Company, etc., of Company submitting Securities Reports
 
1 ''Information on parent company, etc., of company submitting securities reports'' is missing.
5 In cases where the parent company, etc., is listed, the name of the stock exchange is not provided as required.

3.
 Afterword
  The latest intensive screening revealed many inappropriate statements on disclosure items relating to corporate governance situation and information on the parent company, etc., of the company submitting securities reports, including some missing entries. It should be understood that disclosure is required by law to provide useful information for making investment decisions in the interests of investor protection; accordingly, when submitting a securities report, please thoroughly check the instructions for preparing the reports and disclose the relevant information in a proper fashion.

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Survey on Non-payment of Fringe Claims by Non-life Insurance Companies

1.
 Overview of Reporting Request
  In order for an insurance company to run a non-life insurance business, it is absolutely imperative that claims are properly paid. Recently, however, there have been incidents that undermine confidence in non-life insurance businesses: it was found that in many cases, non-life insurance companies have failed to pay fringe claims, especially claims for extra expenses.
 
       (Note)
 
''Non-payment of fringe claims'' refers to the failure to pay fringe claims for extra expenses (consolation payments, condolence payments, loaner car expenses, etc.) which should have been paid in the event of an accident covered by insurance but were not on the grounds that the policyholder did not apply for the payment of such claims, even though the core claims have been paid.
 
With this situation in mind, on September 30, the Financial Services Agency (FSA) demanded all non-life insurance companies (48 companies) to report on the following pursuant to the Insurance Business Law by October 14:
 
    1)   The number of cases in which fringe claims were not paid even though there had been reasons to pay claims over the past three years (from April 2002 to June 2005) and the payment completion status;
    2)   Analysis of the causes of the non-payment of fringe claims, including the modality of the claims payment management system; and
    3)   Measures to prevent such non-payment from recurring based on the analysis of the causes.

2.
 Results of Survey on Non-payment of Fringe Claims
 
(1)  Number of Cases and Amount of Non-payment of Fringe Claims and Payment Status
  Non-payment of fringe claims occurred at 26 out of all the 48 non-life insurance companies. The number of non-payment cases totaled 180,614, and the amount of non-payments totaled approximately 8,403 million yen. On average, the amount of non-payment was 46,000 yen per case.
The 22 companies that reported to have not had any non-payment of fringe claims either did not handle fringe claims in the first place or handled only a small number of fringe claims.
As shown in Graph 1, approximately 90% of all cases of non-payments were related to claims for extra expenses for automobile insurance.
 
[Graph 1: Number of Non-payment Cases by Insurance Type]
[Graph 1: Number of Non-payment Cases by Insurance Type]
  [Graph 2: Breakdown of Automobile Insurance]
   
[Graph 2: Breakdown of Automobile Insurance]
  [Reference]  
 
C ompensation to Other Party
  Extra expenses covered by automobile property damage liability insurance: Insurance money paid in the event of causing damage to the other party's property, for the purpose of buying a cake, etc., in extending an apology to the other party.
Extra expenses covered by automobile bodily injury liability insurance: Insurance money paid in the event of causing death or injury to another person, for the purpose of making consolation payments, etc., to the person or his/her family.
C ompensation to Policyholder
  Claims under automobile passengers' personal accident insurance: Insurance money paid in a fixed amount or at a fixed rate depending on death or severity of injury in the event of causing the death or injury of a passenger (driver and fellow passenger).
Loaner car expenses covered by automobile physical damage insurance: Insurance money paid for covering expenses borne as a result of using an alternative vehicle or other means of transport, etc. while the car is being repaired.
Expenses associated with repairs covered by automobile physical damage insurance: Insurance money paid for cleaning up the accident site, extending an apology to neighbors, and other such purposes that are outside the scope of restoration and repairs coverage by the master contract.
 
(2)  Systemic Problems which Caused Non-payment of Fringe Claims
  The following problems were identified in non-life insurance companies in which non-payment of fringe claims were revealed.
  1) Problems in Internal Coordination in Product Development Stage
 
  • Not enough preparation is being done on the payment system when the product development division and related divisions have discussions upon product release/update, including gaining a thorough understanding of the nature of the product and supporting systems.
  • There are no rules on matters to be discussed between related divisions or on the schedule for the development and sale of new products.
  2) Poor Efforts made to Ensure Customers' Understanding
 
  • Explanation and guidance on products are inadequate, as to what kind of fringe claims exist in addition to core claims.
  • No clear explanation or guidance is provided in regards to how to make an insurance claim in the event that reasons for paying fringe claims arise, in addition to core claims.
  3) Problems in Payment Division
 
  • The staff's attention is focused on affairs related to the payment of core claims such as determining the amount of damages and negotiating out-of-court settlements, resulting in inadequate confirmation and guidance of the terms and conditions of the insurance policy and insurance claims made by the policyholder.
  • The system of secondary checking by managers, etc., in the payment division is inadequate in view of preventing the non-payment of fringe claims.
  • The content of the appraisal manual, etc., is neither structured nor exhaustive.
  • Even though there was a clause stipulating that claims for a certain amount of extra expenses would be paid regardless of whether or not such expenses were actually incurred in the event of an accident, it was misunderstood that the payment criteria would not be met unless the extra expenses were actually incurred as in the case of paying typical non-life insurance claims.
  • In cases where the staff member in charge varied from claim item to claim item (personal injury, automobile passengers' personal accident, self-sustained personal accident), the staff members did not collaborate with each other even if they were working on the same accident. On the other hand, in cases where a single staff member was in charge of all claim items covered by insurance, the staff member only registered the accident for claims including automobile bodily injury liability insurance which involve out-of-court settlement, etc., and other such affairs, but failed to register the accident for automobile passengers' personal accident insurance.
  4) Systemic Problems
 
  • The system is inadequate for checking and preventing non-payments and for encouraging payments (example: system for checking the terms and conditions of the insurance policy against the nature of the accident, system that raises an alarm in the event of non-payment, etc.)
  • For some claim items, there is no framework that makes the system carry out checks; manual checks are solely replied upon as a result.
  5) Problems in Inspection, Internal Audits, etc.
 
  • There is a lack of inspection and audit items, in view of preventing non-payment of fringe claims.
  • The management team is not sufficiently informed of the inspection and audit results.
  • Even if the non-payment of claims has been revealed in some items, checks are not adequately performed as to whether or not similar non-payment of claims has occurred in other items.
(3)  Preventive Measures to be taken by Non-life Insurance Companies
  Non-life insurance companies are striving to take the following measures to prevent the recurrence of non-payments, based on the analysis of the causes as described above.
 
1)  Building a System that Addresses All Staff in the Product Development Stage
 
  • Define areas to be reviewed in order to prevent non-payments in the product development stage and lay down rules, etc., for the progress management of product development aimed at collaborating with related divisions, etc.
  2) Review of Procedures, Forms, etc., for Payment Process
 
  • Conduct a review including raising awareness by adding new fringe claims items in the appraisal manual and the payment check sheet used by the payment manager and staff.
  3) Training Programs, etc.
 
  • Conduct a training program for the prevention of non-payment of fringe claims targeted at staff especially in the payment division.
  4) System Support
 
  • Add a warning display function for non-payment of fringe claims.
  5) Addition to List and Periodic Execution of Back-check
 
  • Add the fringe claims payment system to the list of items that are subject to verification when conducting a business inspection or internal audit.
Some non-life insurance companies are striving to take the following preventive measures in addition to the above.
 
  • In building a system that addresses all staff in the product development stage, some non-life insurance companies are establishing a special organization consisting of executives, etc., of the liability services division, product development division, systems division, etc., in order to look into the system in light of the business routines for claims payment and quality control.
  • Some non-life insurance companies are reviewing the content of insurance claim forms so that they could be fully understood by customers and the paid claims could be checked between the customer and the insurance company.
  • Some non-life insurance companies are conducting assurance tests targeting staff, especially in the payment division, in order to ascertain how much knowledge they have absorbed.
  • For systems, some non-life insurance companies are introducing a function that prevents the payment process from being completed unless there is confirmation on whether or not it is necessary to pay fringe claims.
  • Some non-life insurance companies are making a list of cases with potential non-payments and conducting business inspection and internal audit on a regular basis to determine whether there are any non-payments.

3.
 Action taken by FSA
  These non-payments were caused not only by the way in which individual cases were processed, but also by flaws in the fringe claims system spanning from product development to payment management, and are deemed to be attributable to structural problems such as faults in the governance system and internal control system. Accordingly, the FSA issued a Business Improvement Order to the 26 companies in which non-payments occurred pursuant to Article No.132 (1) of the Insurance Business Law and other provisions on November 25, to address the following:
 
       (1)  Improvement and enhancement of the governance system;
       (2)  Review and improvement of the system for providing explanation to customers;
       (3)  Review and improvement of the product development system;
       (4)  Examination and review of the payment management system, etc.
  Further, the FSA requested the 22 companies reported to have not had any non-payment of fringe claims to review and improve similar systems for the payment of claims.

4.
 FSA's Approach for the Future
  The FSA will continue to encourage life insurance companies and non-life insurance companies to improve and develop their respective claims payment management systems through inspection and supervision, in consideration of the claims-payment-related problems identified as a result of the reporting request issued to the companies. Further, the FSA will look into measures, including revising the comprehensive supervision guidelines for insurance companies, taking into account the analysis results of the causes of such serious problems as the inappropriate non-payment of claims and the non-payment of fringe claims.
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