Earlier this month, several Japanese nonlife insurance companies owned up to a raft of payment failures relating to automobile and fire insurance claims.
Fourteen insurers have thus far been caught up in the scandal, with the combined number of cases on nonpayment over the past three years believed to be as high as 130,000, and worth more than 5 billion yen.
The following are questions and answers pertaining to the background and the impact of the industrywide scandal.
Why did the insurers fail to pay the money?
The nonlife insurers claim these failures stem primarily from defects in their insurance payment calculation programs. The computerized systems cover major insurance products, but not some special clauses for automobile and fire insurance policies — the types of claims found to be unpaid in the scandal.
These special automobile insurance clauses, for example, cover the cost of renting a car or taking a taxi while the policyholder’s car is being repaired after an accident.
Human error was said to be another cause. Employees in charge of handling payouts overlooked the unpaid claims, as each of those special clauses amounted to only a small sum.
Why did the payout failure spread over the industry?
Analysts claim insurers usually use quite similar computer systems to calculate payouts. Payment failures at one firm could, therefore, mean other firms may experience similar problems. Also, Finance Ministry regulations kept insurers from diversifying their systems.
It was not until February that Fuji Fire and Marine Insurance discovered a payment failure after one of its agents pointed it out. Sony Assurance Inc. then announced a failure in June after an internal investigation.
The two firms’ disclosures prompted other nonlife insurers to double-check their payout records, only to discover more unpaid claims.
What steps are nonlife insurers planning to take to prevent such failures?
Some insurers plan to update their calculation programs so they can cover all types of insurance. To reduce human error, they plan to retrain employees to double-check their handling of special clauses, which are complex in product design.
Will the insurance market suffer serious damage?
The payout failures may deepen mistrust of the overall industry, some analysts said.
The news surprised the public because it was a few months after Meiji Yasuda Life Insurance Co., one of Japan’s top four life insurers, admitted in July that it had unfairly withheld death benefits.
Meiji Yasuda was already slapped in February by the Financial Services Agency with a business suspension order due to its illegal sales practices.
Meiji Yasuda’s second round of disclosures prompted the FSA to order all 39 life insurance companies operating in Japan to investigate and report by the end of September whether they had failed to make due payouts to policyholders over the past five years. The insurers have not yet finished their internal investigations.
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