The General Insurance Association of Japan (GIAJ) has issued guidelines advising non-life insurers to set clear deadlines to sell cross-held shares and to avoid acquiring new ones.
Cross-held shares, also known as strategic shareholdings, involve companies holding stock in each other primarily to strengthen business ties rather than for investment purposes. While common in Japan, this practice is under increasing scrutiny as it can lead to decisions driven more by relationships than by service quality or cost.
The GIAJ’s call to action follows a series of scandals that have plagued Japan’s non-life industry over the past 18 months, including price-fixing and the inappropriate sharing of data, which have led the Financial Services Agency (FSA) and Fair-trade Commission to conduct investigations, on-site inspections, and issue business improvement orders to the country’s biggest general insurers.
Japan’s largest general insurers are estimated to own more than 5,900 strategic shareholdings valued at around ¥6 trillion (US$42bn) as of March.
This is not the first time the industry has been told to offload their cross-held shares. Following an investigation into price-fixing, the FSA told the country’s largest non-life insurers to accelerate the sale of their strategic shareholdings. In response, Tokio Marine, Sompo Japan, Mitsui Sumitomo, and Aioi Nissay aim to unwind their cross-held shares in the coming years.
However, the GIAJ has now advised its members to set a clear deadline to reduce their strategic holdings to zero.
An “urgent issue”
The GIAJ’s guidelines come after a year of heightened scrutiny over the operational practices of Japan’s non-life insurers.
In February, Sompo Japan Chairman Keiji Nishizawa was one in a series of high-profile resignations from the company following a scandal which involved used-car dealer Bigmotor committing insurance fraud.
All four of the country’s non-life insurers were also investigated for colluding to fix prices for corporate policies, with site inspections by the FSA and Fair-trade Commission leading to business improvement orders and other penalties.
In May, the four major non-life insurers admitted to inappropriately sharing policy information of motor customers. And just last month, it was disclosed that 2 million customer records had been inappropriately shared by seconded employees to their parent companies.
In response to the scandals that are plaguing the industry, Keisuke Niiro, who at the time was Chairman of the GIAJ, said in in June that “Restoring trust has been [the industry’s] most urgent issue.”
“We are only halfway to restoring society’s trust in our industry. We must work tirelessly to quickly develop an appropriate competitive environment and ensure discipline in our activities,” Niiro added.
But despite the negativity surrounding conduct, the move to sell cross-held shares could bring positive changes to the industry.
At the 2024 InsureTech Connect Asia conference in June, industry participants said that selling the roughly US$42bn in strategic shareholdings would enable investment in new technologies and business ventures to modernise Japan’s market. By reallocating funds from these selloffs, insurers can also partner with insurtech firms, both domestic and foreign, to develop new products, improve operational efficiency, and adapt to Japan’s ageing population and economic challenges, the experts said.
