Deregulation in the Primary Sectors

I. Deregulation in the Primary Sectors

(1) The Ministry of Finance publicly announced on October 1, 1996 its decision to implement the following measures. The Government of the United States welcomes this decision by the Ministry of Finance.

1. A direct response system (Tsushin-Hanbai) for automobile insurance is a distribution method whereby insurance providers offer their products to consumers through advertising media, such as newspapers and magazines, and through direct mail or telephone calls; accept applications of consumers delivered via mail or telephone calls; and enter into contracts with consumers through an exchange via mail or telephone calls, without meeting the consumers.
   
   The Ministry of Finance decided to approve applications for a direct response system for automobile insurance as of October 1, 1996. At the same time, the Ministry of Finance decided to approve payment of premiums through the use of credit cards, with the policy effective from the date when the insurance provider accepts credit card payment.
   
   As of December 15, 1996, two insurance providers already have received approval of their applications to provide automobile insurance through a direct response system. The Ministry of Finance intends to approve other such applications, provided that they meet the relevant legal criteria.
2. The Ministry of Finance decided to expand the scope of the advisory rate system for loading rates of commercial fire insurance effective April 1, 1998, by lowering the minimum amount per contract to 15 billion yen.
3. The Ministry of Finance decided to add effective April 1, 1997, the following ten products to the list of products to which the notification system applies with respect to the rates and riders for such products:
   1. - medical malpractice liability insurance (Ishi Baisho Sekinin Hoken)
   2. - advanced loss of machinery profit insurance (Sogyo Kaishi Chien Hoken)
   3. - delayed start of construction insurance (Kaigyo Chien Hoken)
   4. - civil engineering completed risks insurance (Doboku Kozobutsu Hoken)
   5. - nuclear energy insurance (Genshiryoku Hoken)
   6. - umbrella liability insurance (Kigyo Hokatsu Baisho Sekinin Hoken)
   7. - environment liability insurance (Kankyo Osen Baisho Sekinin Hoken)
   8. - erection insurance (Kumitate Hoken)
   9. - moveable comprehensive insurance (Dosan Sogo Hoken)
   10. - computer comprehensive insurance (Konpyuta Sogo Hoken)

(2) The Ministry of Finance is prepared to make further efforts toward deregulation in the primary insurance sectors, and will take the following measures:

1. The Ministry of Finance will expand the scope of the advisory rate system for loading rates of commercial fire insurance effective January 1, 1997, by lowering the minimum amount per contract to 20 billion yen and to 7 billion yen effective April 1, 1998.
2. The Ministry of Finance will add effective January 1, 1997, the products described in subsection (1) c. above as well as the following products to the list of products to which the notification system applies with respect to the rates and riders for such products:
   1. - boiler and turbo-set insurance (Boiler Turbo-set Hoken)
   2. - transit insurance (Unsoh Hoken)
   3. - credit card theft insurance (Credit Card Tonan Hoken)
   4. - general liability insurance (Baisho Sekinin Hoken)
   5. - construction all-risk insurance (Kensetsu Koji Hoken)
   6. - surety bonds (Hosho Shoken)

(3) Rating organizations

1. To benefit Japanese consumers through greater innovation and competition in the insurance market, the Ministry of Finance has decided to take actions to undertake fundamental reform of the rating organization system, with a view toward achieving maximum liberalization through elimination of obligations for members of a rating organization to use rates calculated by the rating organization, while allowing members of a rating organization to use, for the purpose of calculating rates, the statistical data collected by the rating organization.
2. The Government of Japan intends to submit to the Diet as early as possible in 1998 legislation which will achieve the objectives mentioned in paragraph a. above. All measures pertaining to domestic legislative action are subject to, and do not prejudge, deliberations by the Japanese Diet.
3. When the legislative changes and their accompanying administrative measures are implemented, the Ministry of Finance will approve, within the standard processing period of 90 days after submission, applications allowing insurance providers to differentiate, on the basis of the risk insured, the rates, forms and distribution of products, without regard to whether such applications use statistical rates calculated by the rating organization.
4. In the interim before the legislative changes and their accompanying administrative measures are implemented, the Ministry of Finance welcomes, and will approve within the standard processing period of 90 days after submission, applications for products in major product categories in the life and non-life sectors which provide for the flexibility to differentiate, on the basis of the risk insured, the rates, forms and distribution of products. (The timing for approval of differentiated auto insurance is addressed in subsection (4) below.)
5. In the event that an application in paragraph d. involves differentiation beyond the rates or products approved within rating organizations, the following procedures will apply:
   1. When an insurance provider files the application, it can design the product with fully differentiated rates by utilizing the data collected by the relevant rating organization, since it is still a member of the rating organization at the time of application.
   2. An insurance provider may, without having to withdraw from the rating organization:
      
      (A) offer a product at a "special rate" ("Tokubetsu-ryoritsu" as provided for in Section 4 of Article 10-5 of the Rating Organizations Law) approved by the Ministry of Finance; and
      
      (B) offer a new product not governed by the requirements of Articles 10-5 and 10-6 of the Rating Organizations Law, subject to approval by the Ministry of Finance under Article 123 of the Insurance Business Law.
   3. If a rating organization concludes in general or in a particular case that an insurance provider should withdraw from the organization to some degree, the Ministry of Finance will pursue resolution of technical issues that arise in connection with withdrawal, in a manner that facilitates withdrawal without undue restrictions or burdens on the insurance provider.
   4. When, in order to offer a product at differentiated rates, an insurance provider has to leave the rating organization with respect to that product as well as other products for which the insurance provider does not intend to offer differentiated rates beyond the banded rates, the Ministry of Finance will approve the applications for such other products at the time the insurance provider is required to leave the rating organization, provided that the applications use rates calculated by the rating organization for those products.

(4) Automobile insurance with differentiated rates

1. With a view to enhancing further the benefits to Japanese consumers, the Ministry of Finance will approve applications for automobile insurance with the flexibility to differentiate, on the basis of the risk insured, the rates, forms and distribution of products, including a direct response system for automobile insurance with differentiated rates (collectively, "differentiated auto insurance") effective September 1, 1997.
2. Differentiation on the basis of the risk insured includes differentiation of rates outside the banded rates based on the following risk factors: age, sex, driving history, usage (e.g., commercial, personal) and pattern of use (e.g., mileage per year), geography (by region, i.e., Hokkaido, Shikoku, Kyushu, and Honshu, which will be divided into Tohoku, Kanto-Koshinetsu, Hokuriku-Tokai, and Kinki-Chugoku), vehicle type, vehicle safety features, multi-car ownership.