A report by a panel of lawyers probing the inappropriate sales of Japan Post Insurance Co. insurance policies sheds light on an extremely serious problem in which priority was given to achieving sales targets at the cost of customer interest. In the five years to 2018, some 156,000 Japan Post Insurance customers signed 183,000 contracts that may have harmed their interest, and violation of relevant laws or in-house rules by sales staff — such as giving customers false explanations or getting elderly customers to sign contracts without the presence of their family members — were suspected in nearly 13,000 cases. The probe confirmed that either laws were violated or in-house rules were breached in 670 of the cases, but the figure is deemed to represent only a tip of the iceberg.
In most of the cases, salespersons at Japan Post Co., which sells Japan Post Insurance products at post offices nationwide, are said to have led wealthy elderly customers to buy new insurance policies while retaining their old contracts for some time — so that the staff would get higher credit for their sales performance — resulting in the customers making double payments on insurance premiums. More than 70 percent of the customers who signed the questionable contracts were 60 or older.
The panel’s report blamed the problem on a tendency within Japan Post and Japan Post Insurance to “condone or justify inappropriate sales” to achieve the demanding sales targets imposed on post offices, sections and individual sales staff. Both firms cannot escape criticism that the improper practices were continued in an organized manner. While the resignation of top executives at both the companies and their parent, Japan Post Holdings, is expected and the Financial Services Agency weighs penalties on the firms, such as suspension of their insurance policy sales, the governance system of the whole group needs to be overhauled to establish a mechanism with checks against illicit business practices.
Of the 156,000 Japan Post Insurance customers affected, about 15,000 have so far expressed their wish that their insurance policies be returned to the old contracts. The Japan Post Holdings group has reimbursed a total of some ¥420 million to customers who made double payments on their insurance premiums. The group needs to make sure that the customers will be compensated for their loss caused by the improper sales.
Separately, the Japan Post group is reportedly examining all 30 million insurance contracts with 19 million customers — and so far some 250,000 customers have responded to a survey that their insurance contracts do not reflect their wishes, while another 150,000 filed other complaints. It must be scrutinized whether similar inappropriate sales practices were behind those contracts.
According to the panel’s report, the number of customer complaints over contracts with Japan Post Insurance began to increase in the early 2000s — particularly among elderly customers who said they did not remembers signing the contracts or that they have questions about insurance premium rates. Inadequate sales practices may have been going on much longer than has been revealed.
The inappropriate sales practices appear to have been fairly widespread. A total of nearly 5,800 salespersons were involved in selling the insurance policy in the 13,000 cases in which illegal acts or breach of in-house rules were suspected, and about one-fourth of them have been commended as employees with excellent sales. To achieve the sales targets imposed on each post office or section, managers rewarded sales staff with high sales and, the report says, inappropriate sales practices were condoned as a tool to increase sales performance. Some of the improper methods that the high-performing staff used, such as their sales pitches to customers, were imitated and shared by colleagues.
Lax governance by the parent Japan Post Holdings was also highlighted as the scandal unfolded. When Japan Post Insurance first acknowledged the inappropriate sales of its insurance policies last June, Masatsugu Nagato, president of the holding company, insisted that there was nothing illegal in what the group’s staff did in selling the products to customers. Apparently, the parent company was either not adequately informed of what was going on or made little issue of the serious problem — which also contributed to allowing it to continue unchecked for years.
The inappropriate sales of Japan Post Insurance products constituted a betrayal of customer trust in the nationwide network of more than 20,000 post offices. Replacing the top executives or temporary suspension of business will not be enough to rebuild the damaged trust. The entire Japan Post group needs to overhaul the organizational culture that was to blame for the illicit practices.