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The Financial Services Agency said Wednesday it will allow banks to sell all types of insurance products within three years.

The deregulation is expected to benefit banks, consumers and insurers, despite their opposition to the step, but make life tougher for existing insurance vendors.

Banks will be allowed to sell life and nonlife insurers’ major lineups in whole-life insurance and automobile insurance. The FSA has yet to decide the timing for deregulation of each insurance product.

The FSA since April 2001 has been gradually lifting restrictions on banks’ sales of insurance items. But they so far include only noncore items, such as overseas travel insurance and variable annuity.

Wednesday’s announcement follows recommendations earlier in the day from the Financial System Council, an advisory panel to Prime Minister Junichiro Koizumi. A working group of the council had been studying the issue since January.

The latest decision marks the beginning of the final stage of deregulation concerning insurance product sales by banks.

The FSA hopes the step will allow consumers to buy insurance products more easily, via neighborhood bank branches.

Life and nonlife insurers are expected to increase their contracts by using banking networks nationwide, while banks could receive commissions from insurers by selling insurance products.

Despite the merits, many insurance companies expressed strong opposition to deregulation during a series of Financial System Council discussions. They said banks would force borrower firms to purchase insurance products by using their strong position as creditors.

To allay such concerns, the FSA is studying possible countermeasures, such as prohibiting banks from selling insurance products to borrower firms.

Another idea being floated is that the FSA should ask banks to set up call centers to cope with complaints over insurance products.

Haruhiko Urushibata, a senior consultant specializing in financial services at Nomura Research Institute, said life and nonlife insurers were concerned that banks could control the sales strategies of insurance products by using their strong sales channels.

Banks’ selling accounts for about 75 percent of the nation’s 2 trillion yen variable annuity market, which was deregulated in 2002, Urushibata said.

While opposing all-out deregulation, many insurance companies have already forged closer ties with banks to increase sales of noncore items, said Masato Hirose, another senior consultant at Nomura Research Institute.

The deregulation debate placed insurers under pressure from their sales agents, who would face tough competition with banks, Hirose said.

Now that the FSA has made its decision, however, insurers will probably start reducing the number of contract-based sales agents and sales staff to avoid channel conflicts with banking networks, he said.

“The deregulation would drastically change the current sales system of insurers by shifting sales channels from contract-based agents to banks,” he said.

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