Japan penalizes its biggest property insurers for price fixing

(Bloomberg) — Japan’s financial regulator penalized the country’s largest property and casualty insurers for colluding to fix prices in contracts with corporate clients.

The Financial Services Agency has issued business improvement orders on the core units of Tokio Marine Holdings Inc., MS&AD Insurance Group Holdings Inc. and Sompo Holdings Inc., said Finance Minister Shunichi Suzuki at a briefing on Tuesday.

The investigation has rocked Japan’s casualty insurance sector, which has also been under fire for failing to detect fraudulent auto insurance claims. The three groups command about 90% of the entire market worth roughly 9 trillion yen ($63 billion) in annual net premium revenue, according to data by the industry association and companies.

Suzuki said it is regrettable that Sompo Japan Insurance, Tokio Marine & Nichido Fire Insurance, Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance had engaged in price-fixing, and urged the firms to take drastic measures to prevent a recurrence.

The “inappropriate behavior was widespread, repeated and continuous, which I think was highly malicious,” Suzuki said. Problems including pressure on sales staff to increase profits were identified, he added.

The subsidiaries of Tokio Marine and Sompo Japan, as well as MS&AD, said in response that they will make company-wide efforts to improve their business operations.

Under pressure

The FSA separately said the insurers were likely to have felt compelled to maintain their profitability as their fire insurance businesses were suffering from losses due to an increase in the frequency and severity of natural disasters around 2018.

On top of a lack of compliance awareness, the firms may have had a diminished sense of market competition given their shareholding relationships with corporate clients, the regulator found.

Under the business improvement order, the insurers have to submit a plan detailing management responsibility and measures to boost governance by the end of February. They also need to make progress reports every three months until the plan is completed. There are no fines imposed under these orders.

Besides the FSA, the Japan Fair Trade Commission is also conducting its own investigation to determine whether the insurers breached the anti-monopoly law. The commission has started on-site inspection of the insurers.

Despite the probes, shares of the three insurance groups have jumped this year. MS&AD has gained 27% in Tokyo trading, while Tokio Marine has climbed 22% and touched a record earlier this month. Sompo, which also recently hit fresh highs, is up 15%.

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