Updated: July 2025, 12

- Insurance agency management system(Governance) deficiencies lead to a series of administrative sanctions

• On August 2025, 8, the Kanto Regional Finance Bureau issued a business improvement order to FP Partner Co., Ltd. (hereinafter referred to as "FP") pursuant to Article 6 of the Insurance Business Act.
  
  FP is the largest insurance agency in the industry, with 6 locations and 11 insurance sales representatives nationwide as of the end of November 174. The company was given the business improvement order due to concerns about its biased recommendation of certain insurance companies and its lack of formality in its obligation to understand and confirm customer intentions.　　

• Also on August 2025, 8, the Tokai Local Finance Bureau issued a business improvement order to Nextage Co., Ltd. (hereinafter referred to as "NX") pursuant to Article 6 of the Insurance Business Act.
  
  NX is a major used car dealership with its headquarters in Nagoya that also operates as an insurance agency. The company was ordered to improve its business practices due to violations of the obligation to establish necessary systems and inadequate explanations regarding the recommended sales of specific products (violation of the obligation to provide information).

　[source]

・"Regarding administrative sanctions against FP Partners Co., Ltd."

　　https://lfb.mof.go.jp/kantou/kinyuu/pagekt_cnt_202508.html　(From the Kanto Local Finance Bureau website)

・"Administrative Actions against Nextage Co., Ltd."

　　https://lfb.mof.go.jp/tokai/kinyuu/kinyuu/20250801.pdf　(From the Tokai Local Finance Bureau website)

In this topic, we will explain the regulations of the Insurance Business Act and other laws based on the administrative sanctions imposed on FP Co.

1. Obligation to understand customer intentions　　

• Article 294-2 of the Insurance Business Act (Understanding customer intentions, etc.) requires insurance companies, etc. to "understand customer intentions" when concluding insurance contracts or engaging in other solicitation activities, and to propose the conclusion of insurance contracts in accordance with those intentions, explain the contents, and provide opportunities to confirm customer intentions.
  
  Furthermore, the "Comprehensive Supervision Guidelines for Insurance Companies" stipulates the specific methods for understanding and confirming customer intentions, the targets of such understanding, and matters concerning the establishment of necessary systems.
  
  
• The reasons for the administrative sanctions against FP Company include the fact that "there is no system in place to check whether insurance solicitors are fulfilling their obligations to understand and confirm customers' intentions, and therefore the appropriateness of this cannot be guaranteed," and it has been pointed out that there have been complaints that "customers were recommended products that did not match their intentions" and "cases in which products that differed from customer intentions were recommended."

2. Obligation to provide information to customers (ensuring comparative sales recommendations)　　

• Article 294 (Provision of Information) of the Insurance Business Act requires insurance companies, etc. to "provide information that will be useful to policyholders, etc., regarding the contents of the insurance contract and other information" when concluding insurance contracts or engaging in other solicitation activities.
  
  In particular, insurance solicitors who are affiliated with two or more insurance companies, so-called joint agents, are required to provide the following explanations depending on the sales method when comparing multiple insurance products or recommending and selling a specific insurance product (comparative recommendation sales). (Article 2-227, Paragraph 2, Items 3 (a) to (c) of the Enforcement Regulations)
  

• The reasons for the administrative sanctions against FP Company include the fact that "the company selects recommended products with an emphasis on the track record of preferential treatment from insurance companies," and it has been noted that "there are many cases in which customers seeking medical insurance are only offered specific insurance products from among the recommended products that correspond to that insurance," and that "the reality is strongly suspected of favoritism in recommending specific insurance companies without reasonable grounds."

Article 2 of the Act on the Provision of Financial Services and the Improvement of the Environment for Their Use stipulates the "duty of good faith and fairness in consideration of the customer's best interests," which broadly applies to the business of insurance companies, etc. When conducting comparative sales recommendations, it is necessary to comply with not only the Insurance Business Act but also relevant laws and regulations, and ensure appropriate business practices that take into consideration the customer's best interests.

3.Prohibited acts regarding the conclusion of insurance contracts, etc.　　

• Article 300 of the Insurance Business Act lists prohibited acts related to the conclusion of insurance contracts, such as failure to disclose important matters, making false disclosures, and offering special benefits. Specifically, these include "failure to disclose important matters such as premiums, insurance periods, and coverage details," and "interfering with filling out health declaration forms or encouraging non-disclosure."
  
  
• The reason for the administrative sanctions against FP Company was that "a performance-based compensation system is applied to the majority of insurance agents (the FP company pays compensation equal to a fixed rate multiplied by the agency commission received by the FP company)," and the compensation was paid for the agent's own contracts (contracts with the agent himself or herself or family members living in the same household), which was pointed out as a violation of Article 300, Paragraph 1, Item 5 of the Insurance Business Act (promising or offering insurance premium discounts, rebates, or other special benefits to policyholders or insured persons).
  
  Furthermore, although FP has decided to monitor compliance with laws and regulations, it has not established a system to monitor inappropriate solicitation, such as signing a large number of large-value contracts. As a result, despite the existence of "multiple insurance solicitors who sign a large number of large-value contracts, switch to other companies in a short period of time, and repeatedly cancel policies," the company has not been able to grasp the reality of this situation, and the need to establish a system for compliance with laws and regulations has been pointed out.

In addition, the reasons for the administrative sanctions against FP Company included its lack of an "appropriate insurance solicitation management system" and a "system for steadily implementing the obligation to provide information to customers and the obligation to understand and confirm their intentions," and it was pointed out that the company needed to establish an effective management system.

• In conjunction with the administrative action against FP, it is said that report requests have been issued to several insurance companies, and the problem may continue to develop.
  
  
  
• "Ensuring appropriate relationships between insurance companies and insurance agents," "Insurance companies providing guidance to insurance agents," and "Ensuring appropriate insurance solicitation practices (ensuring appropriate comparative sales recommendations, etc.)" are elements that have been discussed for some time, and have been advanced through past administrative actions and provisions in various laws, regulations, and supervisory guidelines. However, through the series of responses to this administrative action (leading up to this administrative action, there were press releases regarding the actual business practices of financial planners, and inspections and hearings were also conducted by the Financial Services Agency, etc.), further scrutiny of these "practices" has been brought to light, and it is likely that many businesses have straightened up in fear upon seeing the content of the administrative action.
  
  It seems that many insurance companies and insurance agencies have cleared the formalities, such as "establishing necessary internal regulations" and "responding to audits by insurance companies," but in reality, there are many cases where they have the following problems.
  
  ✓ Although the company regulations stipulate "regular monitoring," we don't know what to do or how to do it.
  　 For the time being, it is limited to formal confirmation such as whether or not the necessary legal documents are present.　
  
  ✓ The audit is conducted formally to the extent that it does not interfere with the agency's business.
  　 In-depth audits have not been conducted
  
  ✓ We audit many agencies, but the audit items and methods are not very different.
  　 The agency also feels that the audits are routine, and the effectiveness of the audits has diminished.

• In addition to this administrative action, amendments are planned to the Insurance Business Act and Supervision Guidelines, both of which are expected to include various provisions that emphasize "focus on actual conditions/effective management systems."
  
  The changes are mainly aimed at large insurance agencies and insurance companies, but as both insurance companies and insurance agencies are being asked to go beyond mere formalities and instead implement effective management practices, smaller insurance companies and part-time insurance companies with low business ratios may be unable to adapt to this trend and may be eliminated as they are not profitable.
  
  Furthermore, in order to build an effective management system, it is necessary to reinforce areas that cannot be covered by "self-checks/self-inspections" and to take an approach of auditing the actual state of business management without favoritism towards the field, and in that sense, it is expected that effective "use of outside parties" such as audits by third-party organizations will also be promoted. (However, it is not enough to just say "it's OK because it's outsourced," but rather a system is needed that includes selecting an appropriate outsourcer in the first place, as well as evaluating and monitoring the outsourced work.)

[reference]

・"Financial System Council Working Group on Non-life Insurance Business, etc. (Secretariat explanatory materials)"

　　https://www.fsa.go.jp/singi/sonpo_wg/siryou/20241115/2.pdf　

・"Report of the Working Group on Systems Concerning the Non-Life Insurance Industry, etc."

　　https://www.fsa.go.jp/singi/singi_kinyu/tosin/20241225/1.pdf

Above

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