JAPAN Law and Practice Contributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo LPC
1. Basis of Insurance and Reinsurance Law 1.1 Sources of Insurance and Reinsurance Law The Insurance Business Act is the basis for the regu- lation of insurance businesses in Japan, providing a contractual relationship surrounding insurance prod- ucts. Although Japan is not a common law country, the judicial precedent, especially that established by the Supreme Court, should be referred to when inter- preting insurance contracts. 2. Regulation of Insurance and Reinsurance 2.1 Insurance and Reinsurance Regulatory Bodies and Legislative Guidance The Financial Services Agency (FSA) is the regula- tory authority overseeing insurance and reinsurance businesses in Japan. Life and non-life insurers are regulated by the Insurance Business Act. Reinsurers are regulated in the same way as non-life insurers. Based on the Insurance Business Act, the regulatory authorities have the power to issue administrative dis- positions to insurance companies, including orders for business improvement, orders for suspension of business and/or orders for cancellation of licences. In fact, broad discretion is given to the regulatory authorities, and those administrative dispositions against insurance companies invoked by the regu- latory authorities are not necessarily based on the assumption that violations of law by insurance com- panies have taken place. Against this background, entities targeted for supervi- sion not only have to make sure that laws and regu- lations are being observed but must also follow the guidelines officially promulgated by the regulatory authorities (the “Comprehensive Guidelines for the Supervision of Insurers”). Underwriting Life and Non-Life Insurance Underwriting life insurance and non-life insurance entails obtaining the necessary business licences from the regulatory authorities. Licences for life insurance
and non-life insurance business cannot be acquired by the same company, and companies are prohibited from running both businesses concurrently. However, both life insurers and non-life insurance companies are at liberty to offer insurance such as medical care insurance, accident insurance or overseas travel acci- dent insurance, ie, insurance from the so-called “third sector” insurance market. Nevertheless, insurance companies – whether operat- ing in the form of a kabushiki kaisha or mutual com- pany – must have board of directors’ meetings, audi- tors’ meetings, audit and other committee meetings, meetings such as nominating committee meetings and accounting auditors. Foreign companies intend- ing to enter into the Japanese market through their subsidiaries are required to acquire the licences men- tioned above. Foreign companies planning to enter through their branch offices must obtain a foreign insurer’s licence. During the licence application procedure, the “basic documents” (articles of incorporation, business plan, standard policy provisions and documents showing the methods to calculate insurance premiums and policy reserves) must be submitted to the regula- tory authorities. Furthermore, insurance companies cannot operate their businesses while in violation of those basic documents, and, in order to develop and offer new insurance products, must procure approval for corresponding changes to their basic documents from the regulatory authorities (“Insurance Product Approval” – regular processing takes 90 days, while a simplified procedure takes 45 days). However, regard- ing certain types of insurance, such as fire insurance where there is little concern of insufficient policyhold- er protection, a notification system to the regulatory authorities has been adopted; nevertheless, notifica- tion may not be required in cases where insurance companies state in the statement of business pro- cedures that special provisions related to business insurance are to be established or modified without notifications (the “Flexible Provision System”). Conducting Other Business and Owning Subsidiaries Insurance companies are not permitted to conduct any business other than insurance business (under-
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