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Sunday, Nov. 6, 2005
The media is insuring itself, but is failing to assure the people
Japan has a reputation for being a shoppers paradise, but while Japanese consumers are considered savvy and discriminating, they aren't necessarily safe from those who would want to take advantage of them.
It's the government's job to protect consumers from improper business practices, but it's the media's job to educate them on how not to fall victim to such practices. One of the frustrating aspects of the recent Meiji Yasuda Life Insurance scandal is how little practical advice it yielded for people who are thinking about buying insurance.
On Oct. 21, three Meiji Yasuda executives resigned to take responsibility for their company's failure to pay insurance claims totaling 5.2 billion yen between 2000 and 2004. Prior to its consolidation with Yasuda, Meiji Life Insurance devised a 3.9 billion yen "action plan" whose main component was maximizing shisaeki, a term that describes the "profit" realized when the amount of benefits paid on life insurance policies in a given year is less than the amount projected.
It did this by involving the legal department in the strategy. The people who evaluate and adjust claims were made aware of the profit target and told to act accordingly by a newly established team whose job was to check benefits. Meiji Yasuda's in-house investigation reported that the company did not pay benefits on 1,053 claims that it should have. The Financial Services Agency has punished the company, and similar irregularities have been found in other insurance companies.
The media has relied on the investigation report and the government for information. What we know is that salespeople told policy holders they didn't have to reveal medical conditions, and later, when the policy holders or their beneficiaries filed claims, the company refused to pay because of undisclosed medical conditions that may have had something to do with the death or disability covered by the policy. Other methods to avoid payment were more subtle -- or creative, depending on how you look at it. In one of the few cases that was explained in detail, a man suffered a stroke, after which the only thing he could say was "hai (yes)." Meiji Yasuda refused to pay on his claim because it decided that being able to utter this one word meant he could "communicate," and thus he did not qualify for disability benefits.
The amorphous quality of the product -- you buy insurance in the hope that you'll never need it -- lends itself to interpretation, and thus it becomes easy to fool people. However, the media has not been aggressive in seeking out victims and having them explain why they took out policies, what they thought they were getting, and how insurance companies justified not paying. Maybe they don't want to discourage consumers, since insurance companies spend a great deal of money on advertising.
Japanese people buy a lot of insurance. And it's questionable if they need all of it. Japan's public health insurance system, for example, is one of the broadest in the world, and it's mandatory. And yet people still take out supplementary health insurance. Part of the reason is a general mistrust of the public sector, but it also has to do with effective advertising that convinces consumers they will need extra money if they are hospitalized. People pay several thousand yen a month in order to receive several thousand yen a day for a limited time if they need hospital care. The hospitalization itself and any necessary operations are covered by public insurance , but not all of it, and the media is adept at scaring people into believing that major illnesses will bankrupt the average person.
The main reason people buy supplementary insurance is that they are sure they will use it: Most of us probably think that someday we will have to be hospitalized for one reason or another. But what about life insurance? We all know we're going to die, but there's no way insurance companies are going to insure everyone, much less pay out to them. That's why they ask about existing medical conditions.
So why do they pay benefits for suicides? It doesn't make sense from a business standpoint, and recently there is much evidence of people killing themselves so that their families can collect on policies to pay off debts. In most countries people who do that sort of thing usually have to make their death look like an accident, but in Japan the payment of benefits for deaths that are clearly suicides appears to be something of an unspoken selling point. Traditionally, beneficiaries could collect on suicides that occurred at least one year after the policy was taken out. In 2000, a number of major companies extended the period to two years, and in 2004 to three years, apparently at the urging of foreign investors.
These foreign interests may not have been comfortable with the idea of paying out for suicides, or they may simply have looked at the bottom line. According to the Mainichi Shimbun, for the past 10 years there's been a 50 percent increase in payments of benefits for suicides, which account for one out of every 10 claims that are paid on life insurance policies. If it's still permissible at all, it can only mean one thing: insurance companies think that more policies can be sold as things stand.
And that is the real bottom line, getting people to take out policies. Once they've started paying, you can do anything you want as long as they don't really know what they're paying for. If the Meiji Yasuda scandal made anything clear, it's that insurance companies are money-making concerns that will do anything to not pay benefits. Once you understand that basic fact of life you are better prepared when the salesperson knocks on your door.