FSA Newsletter April 2006

Aiming to improve the effectiveness of supervision and promote flexible pricing of insurance products while ensuring that insurance premiums are set rationally, reasonably and fairly, the Financial Services Agency (FSA) released its draft "Cabinet Order to Partially Revise the Enforcement Regulation of the Insurance Business Law" and "Comprehensive Guidelines for Supervision of Insurance Companies" on Thursday, November 24, 2005, and solicited public opinions through Monday, December 26. In response to the solicitation, a total of 33 comments were submitted from 16 individuals and organizations. Based on their comments, the Comprehensive Guidelines for Supervision of Insurance Companies were partially revised. The revised guidelines will take effect on April 1 along with a Cabinet Order to partially revise the Enforcement Regulation of the Insurance Business Law.

1. Objectives of the Revision
Management efforts of insurance companies to improve the efficiency of their operations should be reflected appropriately and in a timely manner on insurance premiums. Based on this belief, FSA hopes to simplify its product review, especially with respect to the part of insurance premiums that is not directly tied to actuarial computations, improve the effectiveness of its supervision by executing substantive monitoring of operating expenses, and promote flexible pricing of insurance products while ensuring that insurance premiums are set rationally, reasonably and fairly. To achieve these goals, the Enforcement Regulation of the Insurance Business Law and the Comprehensive Guidelines for Supervision of Insurance Companies were partially revised.

2. Overview of the Revision
The following simplification steps will be implemented as the result of the upcoming revision:

(1) Simplified Product Review Pertaining to Portions of Insurance Premiums Not Directly Tied to Actuarial Computations
Descriptions regarding assumed rates of expense will be eliminated from the statements of estimation methods. Specific and detailed descriptions concerning assumed operating expense will not be required.
The Guidelines will include a statement confirming the fact that the provisions of Item 4, Paragraph 1 of Article 5 of the Insurance Business Law (Prohibition of Unfair and Discriminatory Treatment in Insurance Premiums) and those of Item 5, Paragraph 1 of Article 300 of the law (Prohibition of an Offer of Other Special Privileges) will continue to apply as before.

(Note)
With respect to monitoring, detailed periodic reports by product, etc. will be required of insurance companies separately for the purpose of establishing the relationship between historical operating expenses and insurance premiums.

(2)
Other Simplification Measures
Information required to be included in the statement of the method of operation will be limited to that which is truly necessary, recognizing the effectiveness of supervision.

On February 28, 2006, the Financial Services Agency (FSA) revised the "Comprehensive Guidelines for Supervision of Insurance Companies" ("Guidelines for Supervision").
The latest revision affects two areas. They are (i) requirements for "Policy Overview" and "Warning Information" documents, and (ii) a revision of the Guidelines for Supervision to encourage improvement of the advertisement review system. The summary of these changes is explained in the following paragraphs:

"Policy Overview" and "Warning Information" Documents, Etc.

Development Leading to the Revision

(1)

The "Interim Summary of Issues: How Information Should be Supplied When Selling and Soliciting Insurance Products," released in July 2005 by the "Study Team on Insurance Product Sales and Solicitations," summarized the following issues:

(i)

Implementation of the following measures would be effective when insurance product purchase is solicited:

・

Specifying key information pieces that are offered so as to limit the information volume to a size that does not discourage average consumers from wanting to understand products.

・

Clearly specify minimal key information pieces in each product category.

(ii)

Information must be sorted into the following groups to clarify key items and furnished to customers:

・

Information that is necessary for customers to understand an insurance product ("Policy Overview").

・

Information that insurance companies should supply to customers to alert their attention ("Warning Information").

(iii)

With respect to the content of "Policy Overview" and "Warning Information," a framework should be established in the form of a law or regulation that takes account of product characteristics, etc. As for detailed items in individual product categories, the industry should establish self-imposed guidelines.

(2)

It was agreed that the following revision to the Guidelines for Supervision would be made and clarification achieved with respect to the framework of information to be described in the "Policy Overview" and "Warning Information," the methods of describing and explaining such documents that provide these pieces of information, etc., based on the above-mentioned Interim Summary of Issues.

Description of the Revisions

(1)

Major pieces of information to be described in the "Policy Overview" and the "Warning Information" are as follows:

<<Policy Overview>>
	(i) Mechanism of the product, (ii) description of guarantee offered, (iii) major riders that can be added and their summary explanations, (iv) insurance period, (v) underwriting terms (the insurance amount, etc.)
<<Warning Information>>
	(i) Cooling-off period, (ii) duty of disclosure, (iii) main exclusions, (iv) grade period for premium payment, policy lapse and revival, etc., (v) cancellation and whether or not a cash surrender value is paid.
	(Note)	The written documents providing the "Policy Overview" and the "Warning Information" must provide an insurance company contact for filing complaints and making inquiries, as well as a statement that a customer can lodge a complaint or make an inquiry with an office of an association that the insurance company is a member and that handles complaints and consultation.

(2)

The revision also stipulates that the following system is established with respect to the methods of describing and explaining the "Policy Overview" and the "Warning Information":

(i)

Method of Description

・

Presentation, including the font size and layout, that facilitates understanding by consumers, such as the minimum font size of 8.

・

The language that is used must be clear and accurate.

・

Specific numeric information has to be provided to consumers when there is information that needs to be presented with the use of specific numeric data (such as the insurance period, insurance amount and insurance premium).

・

Care must be taken to limit to the information volume to about what can be presented in approximately a double-sided A-3 size sheet for the "Policy Overview" and the "Warning Information" combined so as not to discourage consumers from attempting to absorb the information.

・

Separation and independence from other written documents.

(ii)

Method of Explanation

・

The fact that it is important to read written documents describing the "Policy Overview" and the "Warning Information," that it is important to read the portions of the documents where information that is especially disadvantageous to consumers, such as main policy exclusions, and that there is a possibility that roll-overs and conversions will be disadvantageous to consumers should be explained orally.

・

Adequate time should be allowed for consumers to understand the content of "Policy Overview" and that of the "Warning Information" when issuing these written documents.

II.

Revision of the Guidelines for Supervision to Promote the Improvement of the Advertisement Review System

Development Leading to the Revision

Advertisements, etc. about insurance products are made frequently in a variety of ways through various media, including newspapers, TV and pamphlets that are used by insurance solicitors.
The impression of insurance products that average consumers develop based on advertisements, etc. greatly influences their desire to purchase such products. Considering that insurance products have become increasingly diverse and complex, their fair presentation in advertisements, etc. is believed to have become all the more important.
FSA has monitored presentations in advertisements in an effort to protect user needs and ensure thorough compliance with user protection rules. At the time, the agency has decided to adopt the following revision to the Guidelines to Supervision in order to further strengthen the insurance company advertisement review system:

Overview of the Revision

(1)

Addition of Caution to be Used in Establishing Internal Regulations to Ensure Fair Presentation

・

Prevention of Erroneous Recognition of Excellence and That of Erroneous Recognition of Advantages

Examples have been added with respect to information items that require caution so as not to give a policyholder a false impression of remarkable excellence or remarkable advantages when excellence or advantages of the guarantee provided by an insurance product are presented.

・

Presentation Based on Objective Facts

A statement has been added to question whether or not asserted information is objectively verified when, for example, terms that directly indicate the highest grade or other ranking in the industry are used.

・

Presentation of Over-the-Counter Products Sold by Banks

A statement has been added to question whether or not the fact that products being promoted are insurance products of an insurance company is presented properly so that they are not mistaken by consumers as deposits, etc.

(2)

Alerts Importance of the "Policy Overview" and the "Warning Information"

A new stipulation was added, requiring a statement to alert consumers about the importance of reading the "Policy Overview" and the "Warning Information" in accordance with the presentation media and the content presented.

(3)

Establishment of an Adequate Review System to Ensure Fair Presentation

The following points were added as cautions to be exercised in establishing an adequate advertisement review system, including legal checks:

(i)

Does the system ensure that reviews of presented information are conducted without any omissions with the adoption of a method such as central control of solicitation materials, etc. at the head office?

(ii)

Is the system designed to check the consistency of presented information across pamphlets, policy summary and other materials?

(iii)

Is the system designed to analyze problems of presentation that are pointed out in complaints by policyholders, etc., and take proper action for improvement in the event problems are recognized?

The foregoing summarizes the major contents of the latest revision. These provisions take effect on April 1, 2006. (If legitimate circumstances prevent insurance companies from taking action on the portions relating to the "Policy Overview" and the "Warning Information), however, postponement of the implementation of the portions is permitted until September 30, 2006.) FSA too will endeavor to reflect these changes smoothly on its supervisory operation.

The Financial Services Agency (FSA) conducted a questionnaire-based survey of 1,727 private financial institutions (banks, shinkin banks, credit unions, labor banks and agricultural and fisheries cooperative credit unions) to find out the "Status of Measures taken by Financial Institutions to Combat the Problems of Counterfeit ATM Cards" as of the end of December 2005. The results of the survey were released on February 10, the date on which the "Law to Protect the Holders of Counterfeit and Stolen ATM Cards" went into effect.
The results of the previous survey (as of the end of April 2005) were released on June 24, 2005. In the latest survey, some of the survey questions were revised.

	The following are major changes from the previous survey:
	・	number of financial institutions that issue IC cash cards: 6 → 28
	・	that have adopted biometric identification: 2 → 15
	・	that have applied film on ATM screens to prevent peeping: 352 → 881
	・	that have adopted a system to detect abnormal withdrawals from ATMs: 60 → 335
	・	that have created a manual to respond to victims: 57 → 258
	The following are major findings in newly added questions:
	・	number of financial institutions that have adopted a mechanism to individually detect PINs that are easy to guess and suggest to change PINs: 206
	・	where cardholders can set a limit on the amount of ATM cash withdrawals: 1,561
	・	that keep security video camera images of ATM corners for at least three months: 1,145
	・	that have opened a specialized desk for damage recovery: 310

Financial institutions must choose their countermeasures for counterfeit ATM card problems by considering their client and operational characteristics. It is not the intention of FSA to require that institutions implement all the items that are included in the latest survey. Nevertheless, FSA finds it very important that all financial institutions continue to take measures to prevent damage and take proper actions when a cardholder suffers from damages in accordance with the "Law to Protect the Holders of Counterfeit and Stolen ATM Cards."

Kaoru Yosano (Minister of State for Economic & Fiscal Policy and Financial Services) delivers an address at an information meeting on the facilitation of year-end lending (February 27).		Kaoru Yosano (Minister of State for Economic & Fiscal Policy and Financial Services) receives a courtesy call from Christine Lagarde, Foreign Trade Minister of the French Ministry of Economy, Finance and Industry (February 23).
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