Inaugural address by New Chairman of the General Insurance Association of Japan(Translation)
released on June 30, 2004
(July 16, 2004

Mr. Hiroshi Hirano delivered his inaugural address as Chairman of the General Insurance Association of Japan after his election on June 30, 2004.

Mr. Hiroshi Hirano, Chairman
Mr. Hiroshi Hirano, Chairman

1. The environment surrounding the general insurance business

(1) Severe market conditions

In fiscal 2003, most general insurance companiesrecorded positive earnings with the trend towards recovery of the Japanese economy. These earnings resulted from the recovery of the stock market from a long-term slump and from each company's rationalization efforts to decrease their operating expenses.

Market conditions are still severe due to the slowdown in premium income of automobile insurance, which has the largest share of all product lines, as a result of the application of claim free premium discount and prolonged periods of automobile replacement cycle.
However, premium income of all product lines has stayed at the same level as the previous fiscal year as a result of each company's ingenuity and marketing efforts.

(2) Competition among different kinds of financial institutions

As boundaries between different kinds of financial sectors are beginning to merge, each general insurance company has to make its own managerial efforts to ensure selection by customers as their preferred company among the different kinds of financial institutions. According to Government policy 2004, "Basic Policies for Economic and Fiscal Management and Structural Reform 2004", the Government will formulate the "Program for the Concentrated Consolidation of the Financial System" targeting banks, securities companies and insurance companies by the end of this year and will further strengthen Japanese financial sectors through structural reform. It is expected that competition among financial institutions will intensify.

(3) Growing interest in corporate social responsibility

Public concern about corporate social responsibility (CSR) has grown rapidly against the backdrop of recent corporate scandals. Standardization of CSR is now actively discussed and socially responsible investment (SRI), which is the principle of making investment decisions on the basis of a company's CSR, is also growing. These trends will be accelerated.

2. The challenge for the general insurance industry

To achieve sustainable development in the above mentioned environments such as "Severe market conditions", "Competition among different kinds of financial institutions" and "Growing interest in corporate social responsibility", general insurance companies have to work on the following 3 tasks.

(1) Be closer to customers

We have to make general insurance closer to customers by increasing the opportunities to communicate the function and importance of general insurance to customers. To achieve this, it is important for us to enhance customer services. We are going to take careful note of customers' opinions on improving our products and services.

(2) More trust from customers and society

The GIAJ has made a strong effort to protect the environment since the early stages in this field by obtaining the ISO 14001 Certificate. The GIAJ was the first financial trade organization to get this certificate and is regarded as an industry leader in this area. In this way, we welcome the growing interest in corporate social responsibility in the business community.

The GIAJ will actively be involved in CSR by improving disaster and crime prevention activities. The GIAJ will use its experience and know-how of the general insurance industry to support each company's CSR activities to enhance social responsibility, including compliance with laws and regulations and make the general insurance industry more reliable to customers and the public.

(3)Increase customers' sense of security

It goes without saying that general insurance companies have to be financially sound to secure the payment of claims for the customer's sense of security. The GIAJ will do its best to enforce a sound financial foundation of general insurance companies to provide compensation to customers in their moment of need and establish sound financial schemes to better policyholders protection.

3. Specific Activities

With the above 3 challenges, we would like to focus on "enhancement of customer services", "implementation of social responsibility" and "establishment of sounder financial schemes" as important pillars of our activities.

(1) Enhancement of customer services

The GIAJ sets General Insurance Counseling Office and Automobile Insurance Claims Counseling Centers to give a customer consultation service and to respond to customer complaints. The GIAJ makes a database of consultations and complaints from customers and analyzes the information to feed back to member companies. The GIAJ will reinforce this activity to improve customer services.

The GIAJ will also reinforce the information services of its Web site and Sonpo Information Square to provide timely and easy-to-understand information to the public.

We will hold meetings with consumer groups to collect a wide range of views and to exchange opinions on general insurance providers' services, and utilize these opinions for the future direction of the general insurance business.

(2) Implementation of social responsibility

In January 2005, the United Nations World Conference on Disaster Reduction will be held in Kobe to mark the 10th year of the Great Hanshin-Awaji Earthquake. By participating in this Conference, the GIAJ will hold an event to further highlight the importance of disaster prevention activities and earthquake insurance nationwide by

a. Giving a presentation on a disaster prevention education program for elementary school students, "Exploration for Disaster Prevention" into which GIAJ puts a lot of work.

b. Holding a radio forum to educate the public about the importance of disaster prevention. The presenters of radio stations will participate in the forum and then pass on the information to their listeners via radio broadcasts.

The GIAJ will continuously implement its existing activities such as crime prevention activities, traffic safety activities and environmental protection activities. In particular, we will focus on automobile theft prevention activities which started in 1999 when I assumed the chairmanship of the GIAJ. As a result of these continued efforts, the number of the thefts has decreased since last October.

We will give particular attention to domestic and overseas future trends toward standardization of Corporate Social Responsibility (CSR) and provide such information to our member companies to support each company's CSR activities to improve the compliance with laws, regulations and human rights considerations.

With the enactment of Personal Information Protection Law in May 2003, the GIAJ established a task force last October. The task force has discussed the interpretation of the Law from the aspect of the general insurance business and has compiled practical measures. General insurance companies will be fully ready themselves to comply with the Law by April 2005 when the regulation on businesses which handle personal information will be enforced, according to the administrative guidelines which will be enacted this autumn.

(3) Establishment of sounder financial schemes

The risk of natural hazards tends to increase and to be larger than ever worldwide. Protection against future natural disasters is an urgent issue for the general insurance industry. To cope with the situation, the GIAJ has been reviewing an underwriting reserve system set aside as a liability for insurance claims from the aspect of an insurance company's financial health and for policyholder protection.

A review of the policy-holders protection scheme has been discussed in the Financial System Council which is advisory body to the Prime Minister. Future direction on this matter will be decided within this fiscal year. Based on the past general insurance insolvency experiences, we propose that the Non-Life Insurance Policy-holders Protection Corporation should guarantee 100% claims payment for a certain period after insolvency and during the period policyholders of an insolvent insurer will be encouraged to replace their policy with a financially sound insurance company. We believe that this basic idea of our proposal has been generally accepted by the Financial System Council.

We still have a forward-looking agenda on how to handle the contracts of medical insurance, nursing care insurance and pensions, which support the social security system, return of premiums for cancellation of long-term contracts and saving portion of maturity-refund type insurance, etc. under the proposed scheme. We will discuss the above mentioned matters to establish the most suitable scheme by balancing policyholders protection with the principle of self-discipline.

The GIAJ also actively observed the IAIS (the International Association of Insurance Supervisors) and the IASB (International Accounting Standards Board) activities which are reflected in Japanese insurance supervision and financial schemes. We will submit our comments to international organizations to improve the financial soundness of general insurance companies.

(4) Other items discussed by the Financial System Council

Insurance products dealt with by banks will be expanded and restrictions will be totally lifted in three years after assessing the effectiveness of measures which will prevent forced sales by bank employees and other types of harm to customers. In order to avoid adverse effects on customers' benefits and convenience, the GIAJ continues to pay the utmost attention to the system of preventive measures and their effectiveness. Discussion on cooperative insurers who are unregulated by any oversight agency or law, is still continuing in the Financial System Council with no specific regulation ideas, though most of the Council members insist that unregulated cooperative insurers who provide their services to unspecific public* should be regulated from the point of customer protection. The GIAJ also has the same opinion as most of the Council members. We hope that the deliberations of the committee will make further progress and we will submit our opinion to them to find a good solution.

Notes

Cooperatives called Kyosai basically cover people with a common interest, such as doctors, teachers, farmers, etc. providing benefits like funeral expenses for relatively low premiums. Some Kyosai are regulated but others are unregulated and cover people without common interests, like a normal insurance company.

Under the "liberalized market paradigm", business activity tends to be excessively competitive and tends to undermine customer interests. To gain customer trust in the general insurance industry, the GIAJ should implement its own specific activities steadily and promptly. It's not too much to say that the Association's role is more and more important than ever before under this " liberalized market paradigm".

It is anticipated that expectations toward general insurance will change according to the changes in the business environment and expectations will increase in the future. To meet such expectations properly, we need to listen to the voices of the customers, the companies and the society faithfully.

As the Chairman of the GIAJ, I will do my best to create a general insurance industry which responds to the expectations of customers and society with great integrity. We hope for your continued support and understanding of our industry.