Premium revenues for the nation’s major life insurers dropped in business 2006, reflecting fallout from revelations of an industrywide failure to properly pay out benefits, according to their earnings reports released Wednesday.

In April, 38 Japanese and foreign life insurers operating in Japan admitted they failed to pay out a combined 35.9 billion yen in 440,000 cases between fiscal 2001 and 2005.

Meiji Yasuda Life Insurance Co.’s premium revenues, which indicate a life insurer’s sales, dropped 3.9 percent to 2.57 trillion yen in the business year to March 31 since the company was banned from selling new products from November 2005 to July 2006.

The Financial Services Agency ordered Meiji Yasuda to partially suspend operations in October 2005 for failing to pay out legitimate insurance claims.

“Because we were not allowed to sell new products for the first half of fiscal 2006, business was not favorable,” said Hiroaki Tonooka, Meiji Yasuda’s managing executive officer.

The life insurer set aside 2 billion yen for business 2006 and another 3 billion yen for the current business year to cover the costs of dealing with the nonpayment cases.

Among six major life insurance companies in Japan, Nippon Life Insurance Co., Japan’s biggest life insurer, was the only company that increased premium revenues. The company posted 4.85 trillion yen, up 0.2 percent, from a year earlier.

Other companies are also facing tougher business conditions. Dai-ichi Mutual Life Insurance Co. said new sales for April and May dropped about 16 percent from the same period last year even though it debuted a new product this spring.

“The figures should have increased more because we introduced a new product in April,” said Koichiro Watanabe, managing executive officer of Dai-ichi Mutual, citing negative impact from the nonpayment fiasco.

But the falling population and aging society, which translate into fewer customers and higher payouts for life insurers, are also hurting their businesses.

According to government statistics, Japan’s population will drop to 99.4 million in 2046 from 127.8 million in 2005.

“The life insurance market would have to shrink,” said Koji Hanaoka, managing director of Sumitomo Life Insurance Co.

Due to such trends, life insurers have been shifting to medical and nursing coverage in the past years. But that market is beginning to be saturated as well.

New sales of health coverage dropped 12.5 percent to 51.3 billion yen for Dai-ichi Mutual Life, while Nippon Life posted 50.2 billion yen, down 15.8 percent, in the same category.

However, a better market environment helped the companies recoup some of the losses they suffered.

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