Dodgy life insurance sales practices hamper savings-to-investment shift

The Yomiuri ShimbunThe current problem involving life insurance could shake trust in such products, the image of which is strongly associated with safety. Carefully explaining their risks to customers is indispensable.

There has been a sharp increase in problems involving foreign currency-denominated insurance primarily intended as savings, a financial instrument aimed at managing the premiums deposited by customers through transactions based on the U.S. dollar or other foreign currencies.

Most complaints concern the lack of adequate explanations about the risks involved. Insurance payments to policyholders could be reduced if there is a rise in the value of the yen. There are also concerns that canceling an insurance contract before maturity could cause a loss of principal. It seems that only high yields on such products have been emphasized to customers, with their negative aspects not sufficiently explained.

The Financial Services Agency has started shoring up supervision over banks and life insurance companies. The FSA has every reason to do so. If there are any problems with them, the FSA should take stern action against them, including administrative punishments.

Although financial assets held by ordinary households exceed ¥1,800 trillion, cash and deposits account for more than half of the total. A task in this respect is to activate the money that is sitting unused for investments and other purposes, thereby helping rejuvenate the economy.

If financial institutions continue their inappropriate sale of financial products for the sake of immediate commission gains, it could hamper the trend toward a shift from savings to investments.

Informed agreement needed

That investments should be made at one’s own discretion is a principle in such transactions. Consumers should recognize the risk of loss inherent in financial products. However, this must be based on the condition that customers can properly understand such risks. If they do not receive adequate explanations, the assumption falls apart.

The details of life insurance products are so complicated they are not easy to understand. It is even more so with products denominated in foreign currency.

There have been a significant number of cases of trouble involving elderly people. For example, a person close to 90 years of age has been made to sign a large foreign currency-denominated life insurance contract without the presence of family members.

Such cases are a far cry from a business approach based on customer-first service. The Japanese Bankers Association has announced it will reconsider the current sales methods. The whole industry should implement necessary measures.

It also cannot be overlooked that some advertising materials for insurance products contain descriptions that might mislead consumers into believing that high yields can be generated, raising expectations of yields greater than those actually produced. There is every reason to inform consumers of actual yield rates.

The Life Insurance Association of Japan has decided to ask each life insurance company to state actual yields rates in their advertising materials, starting in April.

First, the move will be applied to the kind of foreign currency-denominated life insurance whose premiums are to be paid in a lump sum when contracts are signed — a main item in the product lineup. Efforts should be made to accurately explain the features of each product and restore trust in such investments.

The issue is also true with investment trust funds sold by financial institutions. There is no end to churning — a practice known as “kaiten baibai” in Japanese — which means making customers frequently buy new products to replace their old ones. There seem to be a large number of customers whose investment losses are attributable to their having had to pay commissions many times.

Financial circles should take their responsibility to heart and do their utmost to make their marketing activities appropriate.

(From The Yomiuri Shimbun, March 10, 2019)Speech


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