Editorials

Address growing problem at Japan Post group

The problem of inappropriate sales practices at Japan Post Insurance Co. — the biggest scandal to hit the Japan Post group since its creation through the 2007 privatization of the nation’s postal services — keeps expanding and has severely tarnished customers’ trust in the group. Suspicions have also been raised that the group’s management may have been aware of the problem when it sold off Japan Post Insurance shares to investors in April. The price of the shares have plummeted following the revelation of the problem in June.

The group admitted late last month that it has mismanaged at least 183,000 insurance policies over the past five years in ways that hurt the customers’ interests — such as the customers ending up paying the premiums doubly for new and old insurance contracts or the customers rendered uninsured for several months as they were told to wait before signing a new contract after terminating an old one.

The number is nearly double the 93,000 acknowledged by the group in early July. Some cases involved the outright violation of relevant laws, such as Japan Post salespersons forging contract documents without the customers’ consent. The figure may rise even further since the group intends to examine all of Japan Post Insurance’s roughly 30 million insurance policies to see if the contracts have been concluded as wished by the customers.

The top priority should be compensating customers for their losses — as the group has pledged to do — but management’s responsibility for allowing the inappropriate practices to go on for so long must also be identified and the group’s governance system fixed.

Japan Post Co., through which most Japan Post Insurance products are sold, has acknowledged that demanding sales targets imposed on post office workers are behind the problem. In cases in which customers made double payments on their old and new contracts, the insurance salespersons are suspected of getting customers to delay canceling their old contracts for six months after signing the new ones to avoid having the latter classified as a switch-over.

Similarly, customers were left uninsured for months when they were made to delay the signing of new contracts after canceling their old ones because a new contract signed within three months after canceling the old one would also be deemed a switch-over. The salespersons are reported to have engaged in such practices because they get more credit and incentives for their performance if each insurance policy sold is counted as a new contract, instead of as a switch-over.

Following the revelation of the scandal, Japan Post announced that it will suspend its sales of insurance products of Japan Post Insurance and other insurance firms. That could cause severe financial damage to Japan Post, whose revenue has relied greatly on commission fee income from insurance companies. But a larger problem is that customer trust in the Japan Post group has been tarnished by the problem — particularly as the inappropriate sales mainly targeted elderly people, their most loyal customers.

Even after postal services were privatized in 2007, the network of more than 20,000 post offices across the country serve as key infrastructure for nearby residents. The group’s two financial firms — Japan Post Bank and Japan Post Insurance, from which the group’s profits mainly derive — continue to be effectively backed by the creditworthiness of the government, the main shareholder of Japan Post Holdings. It is a grave problem if the group engaged in the inappropriate sales of Japan Post Insurance products by taking advantage of the customers’ trust in post offices.

There are also suspicions that Japan Post group’s top management may have been aware of the problem when it publicly sold off part of the shares it holds on Japan Post Insurance to investors in April — as alleged by the chairman of the government’s committee on postal privatization. The group’s top management flatly denies the allegation. But if it is true, that would mean the group was aware of the risk of investors incurring possible losses, since the share prices of both Japan Post Holdings and Japan Post Insurance plunged to their post-listing lows after the scandal came to light.

The government has planned to secure some ¥1.2 trillion by selling off its stake in Japan Post Holdings as early as this fall to cover the expense of reconstruction efforts in areas hit by the 2011 Great East Japan Earthquake and tsunami. However, that plan may now be difficult due to the scandal and the sharp decline of Japan Post Holdings shares. As the top shareholder of the holding company, the government should also look into the scandal and explore ways to mend its problems.