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Tuesday, Nov. 27, 2007

Business declines for life insurers

Scandal over benefit nonpayment causes fall in contracts


Staff writer

Reeling from an industrywide scandal involving the systematic nonpayment of insurance benefits, major life insurance companies saw new contracts fall in the six months to September, according to earnings reports released Monday.

But unlike Japan's brokerages and banking groups, the life insurers were largely insulated from the U.S. subprime loan crisis thanks to investments in creditworthy securities.

Annualized new premium income at Nippon Life Insurance Co., Japan's biggest life insurer, dropped 25.2 percent to ¥104.9 billion in the April-September period as the company poured resources into making payments to policyholders who had not received proper benefits.

The revelation of nonpayments "was a big brake on the business results for new contracts," said Yoshinobu Tsutsui, Nippon Life's managing director. "Because we focused on explaining the situation to existing customers, the number of new contracts dropped."

At one point, Nippon Life assigned 5,800 employees to deal with the nonpayment incident, including having them call customers to offer explanations and upgrade its computer system.

Annualized new premium income for Dai-ichi Mutual Life Insurance Co. fell 21.8 percent to ¥66.3 billion, while Sumitomo Life Insurance Co. reported ¥87.7 billion, down 13.7 percent, and Meiji Yasuda Life Insurance Co. logged ¥44.7 billion, down 2.3 percent.

"In some cases, customers declined to sign an insurance policy" because of the nonpayments, said Masahiro Hashimoto, managing director of Sumitomo Life.

In the six-month period, Sumitomo Life spent ¥4 billion for personnel and other costs to deal with the nonpayment incident and another ¥7.9 billion for additional payouts.

The additional burden led the company to slash its sales force by 11.4 percent to 36,058 workers from the same period last year.

In October, 38 life insurance companies admitted failing to pay a total of ¥91 billion owed in about 1.2 million cases in the five years from business 2001.

The massive scale of the nonpayment issue began to emerge in 2005 when the Financial Services Agency ordered Meiji Yasuda Life to partially suspend its business for failing to pay out proper insurance benefits and other obligations.

However, in what they call the "bright side" of the nonpayment scandal, many life insurers saw a decline in policy cancellations for the April-September period.

Over the six months, Nippon Life's policy cancellation volume dropped 13.1 percent to ¥7.7 trillion. Sales personnel who contacted customers over the nonpayment cases were able to persuade many to renew their contracts or refrain from canceling insurance policies, Nippon Life said.

Meanwhile, hobbled by the intractable problem of a declining and aging population, life insurers posted mixed results in overall premium revenue, which is equivalent to sales at other companies.

Meiji Yasuda's revenue from premiums increased 3.7 percent to ¥1.34 trillion as individual insurance policies and annuity insurance rose. But Sumitomo Life saw a 10.5 percent decline to ¥1.34 trillion.



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