Chairman's Statement (Translation)
released on June 16, 2005（July 7, 2005）
1. Events related to the General Insurance Industry in the last 12 Months
The Japanese economy has been on a path of gradual recovery for the past 12 months though it has sometimes showed signs of leveling off. As the "Program for Further Financial Reform" compiled by the Financial Services Agency mentioned, Japan's financial system is entering a new forward-looking phase aimed at establishing a desirable financial system for the future, having now moved beyond the emergency reaction against the problem of non-performing loans.
Under these circumstances, the total amount of direct premiums for our member companies for fiscal year 2004 remained at the same level (0.5% decrease) as the previous term. Though the premium income for automobile insurance per policy decreased, the premium income for miscellaneous casualty offset this decrease. As for claims payment, the impact of natural disasters on business results was so large that income decreased from the previous term, though the results themselves ended in the black by drawing down on catastrophe reserves.
As we had two large-scale earthquakes and a record number of typhoon landfalls, claim payments for major natural disasters in fiscal year2004 reached 727.4 billion yen, a high record for a single fiscal year.
There have been several incidents which have threatened public safety, such as large-scale accidents, corporate scandals, a rash of crimes, etc. The expectations of the public with regard to the general insurance industry, which covers individual and corporate risks, is increasing, I realize again the social mission of the general insurance business.
2.Regulatory revisions implemented in the last 12 months
(1) Revision to the catastrophe reserve
The method of funding catastrophe reserves was revised and effective in fiscal year 2005.
General insurance companies are required to quantitatively determine their natural disaster exposure based on their risk models and must fund a policy reserve based on their determined exposure. The ceiling of these reserves will be an amount that fully covers claim payments equivalent to those paid out with respect to Isewan Typhoon of 1959. If the cumulative funding amount falls below this level, companies must set up a funding plan and systematically build up their reserves.
As a result of heavy claims from several large-scale natural disasters that occurred in 2004, general insurers drew heavily on their catastrophe reserves. Reflecting this fact, the non-taxable portion of catastrophe reserves has been increased to 4% from the previous 3%.
Each member company will strengthen their risk management and maintain sufficient solvency to fulfill their social responsibility to pay claims reliably.
(2) Reviewing the policyholders protection scheme
A draft revision of the Insurance Business Law was passed during this ordinary diet session, and thus the policyholders protection scheme has been revised and will be put into force on April 1, 2006.
The GIAJ established a taskforce in May 2002 to establish a more stable system and to consider what type of system should be established to protect policyholders more appropriately when a general insurance company goes bankrupt, and it compiled its final report in March 2003.
This report was submitted to the Financial Services Agency and was deliberated in the Financial System Council. The new safety net system reflects the characteristic point of non-life insurer's policyholders protection, namely that securing claims payment is important for general insurance, which aims to cover policyholders against damage, and will include measures such as the Non-Life Insurance Policy-holder Protection Corporation guaranteeing 100% of claims for 3 months after insolvency, and policyholders of the insolvent insurer being encouraged to take out new policies with financially sound insurers. We believe that the revision will be the policyholder's benefit.
We will do our best through such measures to establish a better policyholders protection system and publicize this to customers.
(3) Regulation of the unregulated Kyosai (cooperative insurers)
Policyholders' protection of unregulated Kyosai had been concerned in respect of its improper sales measures and the vulnerability of its financial basis. As a draft revision of the Insurance Business Law was passed during this ordinary diet session, unregulated Kyosai will come under the supervision of the FSA and will be regulated, in principle, by the Insurance Business Law.
We understand that the FSA is now drafting the related Cabinet Ordinance. The GIAJ expects effective prudential measures to be introduced and shall keep a careful eye on this issue, providing our opinion as needed.
(4) Response to the Personal Information Protection Law
Full enforcement of the Personal Information Protection Law this April had an extraordinary impact on the business environment of each company. As general insurance companies deal with a large amount of sensitive personal information, complying with this law is a crucial business challenge. To provide specific rules for the GIAJ's member companies to comply with, we have compiled our own compliance guidelines based on the Guidelines on Personal Information Protection in the Financial Industry, issued by the FSA last December. The member companies of the GIAJ shall pay due attention to the guidelines. In addition, the GIAJ became a designated information protection body on April 1. We are responsible for the support and discipline of our member companies.
(5) Expansion of insurance sales by banks
On June 10, the FSA asked for public comment on the draft of the enforcement regulation and the guidelines for supervision under the Insurance Business Law concerning insurance sales by banks.
The draft stipulates that following a six month transitional period after introducing new consumer protection measures, personal insurance products sold by banks will be partially expanded, except for automobile insurance. The FSA will monitor the implementation and effectiveness of consumer protection measures for about 2 years, then if they don't see any problems, full liberalization of bank sales of insurance products will be implemented.
Since the Second Subcommittee of the Financial System Council released a report on March 31, 2004, the GIAJ has been taking the position that specific systems and mechanisms for consumer protection measures are an important factor in achieving full liberalization of bank sales of insurance products. Timing of the full liberalization should be decided carefully after assessing whether they are effective or not.
We understand that the draft of the enforcement regulations and the guidelines for supervision are being discussed prudently based on the above opinions from the policyholder's point of view.
Our member companies should provide guidance to their agents in banks to ask them to meticulously abide by the new rules. In order to avoid any adverse effects on customers' benefits and their convenience, the GIAJ will continue to pay the utmost attention to the consumer protection measures and its effectiveness during the monitoring period.
3. Specific Activities
In fiscal year 2004, the GIAJ actively conducted the following 3 main activities, "Enhancement of customer services", "Implementation of social responsibility" and "Establishment of sounder financial schemes, etc." to create a general insurance industry which responds to the expectations of customers and society with greater integrity. I would like to mention some of the particular activities.
(1) Enhancement of customer services
The GIAJ has strengthened its customer services. It expanded the function of Claim Counseling Centers, as well as making a database of the complaints from customers in each Claim Counseling Center to provide feedback to our member companies so that they can utilize the data to improve their customer services.
Specifically, we introduced the feedback system to Automobile Insurance Claims Counseling Centers across the nation last April, and introduced the same feedback system to Claim Counseling Centers last November.
Also, since this May, we have compiled customers' complaint data and have made a monthly database to provide feedback to our member companies. We believe the system leads to further improvement in customer service of our member companies.
(2) Implementation of social responsibility
a. Participation in the United Nations World Conference on Disaster Reduction
The United Nations World Conference on Disaster Reduction which was held in Kobe, Japan this January to commemorate the 10th anniversary of the Great Hanshin-Awaji Earthquake attracted considerable attention from the international community as the Sumatran Earthquake and tsunami tragedy occurred right before the opening of this conference.
During the conference, the GIAJ hosted 2 disaster prevention events: "The Exploration for Disaster Prevention Forum" and "Radio Forum". Both of these forums were characterized by the participants' passion for finding out about what individuals can do to minimize damage at the time of disasters.
Through these events, we reconfirmed the vital role and responsibility of general insurance companies to the public and we successfully conveyed our mission and sense of responsibility concerning these matters to the participants.
b. Automobile theft prevention measures
To cope with the recent increase in social crimes, the GIAJ is promoting crime prevention measures. With respect to the prevention of automobile theft, as a result of naming October 7 as Automobile Theft Prevention Day and carrying out many educational activities, the number of automobile thefts in 2004, decreased by 8.5% over the previous year. This downward trend has continued in 2005. The number of automobile thefts from January to April decreased by 18.5% over the same period last year.
Also, the GIAJ managed to establish Automobile Theft Prevention Councils in all Japanese prefectures last December. We believe that the function of each council will be strengthened and that this will lead to a further decrease in the number of automobile thefts.
c. Releasing the Corporate Social Responsibility (CSR) Report
The GIAJ drew up the CSR report, which explains its various corporate social responsibility activities such as disaster and crime prevention, environmental protection, etc.
This is the first time a Japanese trading organization has published this kind of report. We hope the report will help our customers to understand our CSR activities and see the general insurance industry as "familiar and trustworthy".
d. Revision of the Codes of Conducts
Recently, the need to comply with the laws and to ensure corporate ethics has grown. In addition, if one wishes to be perceived as a trusted company and/or industry, one must conduct business that takes into account not only economic, but also social and environmental factors. In consequence, the GIAJ has revised its Codes of Conduct with a view to responding to the expectations of society.
We have newly established "respect to human dignity", "compliance with laws and regulations" and "active participation in society" as our three Basic Principles. To conform with these Basic Principles, we have drawn up 12 Action Guidelines appropriate to the general insurance business such as the "Guideline concerning creation of a safe society".
The member companies of the GIAJ shall pay due attention to these Codes of Conduct and put them into practice in their individual management policies.
We are grateful that there were certain positive outcomes for each challenge, such as the revision of the premium reserves for natural catastrophic risks, the revision of policyholders protection scheme, the regulation of unregulated Kyosai and the conditional expansion of insurance sales by banks as well as a greater focus on social responsibility, particularly with respect to disaster and crime prevention.
However, several important challenges lie ahead, including responding to the FSA's Program for Further Financial Reform. We look forward to your continued support of the industry.