Nippon Life Insurance Co. announced it will temporarily stop sending employees to work in sales departments of other companies such as banks. The insurer argues that such secondment agreements may distort fair competition in the market.
These secondments—common in Japan’s insurance industry—allow insurers to send staff to financial institutions to sell their products. However, critics contend the practice has contributed to misconduct and lessened competition.
Currently, Nippon Life has 51 employees working at other firms under these arrangements. The company plans to renegotiate with partner companies to either end these secondments or move employees out of sales roles.
Misconduct Risks Highlighted by Bigmotor Case
The troubles caused by secondment agreements are exemplified by the case of used car dealer Bigmotor, which admitted to deliberately damaging vehicles and submitting fraudulent insurance claims in 2023. Following this, the Financial Services Agency (FSA) issued business improvement orders to Sompo Holdings and its Japanese insurance unit for their role in the scandal.
Regulatory and Industry Push for Transparency and Reform
Japanese regulators and industry groups are intensifying efforts to improve transparency and combat improper secondment practices:
The General Insurance Association of Japan plans to issue guidelines by September 2024 banning employee transfers for sales work.
The Financial Services Agency (FSA) intends to strengthen supervision of the insurance sector’s secondment practices.
Broader corporate reforms are underway, including pressure on companies to reduce cross-shareholdings and improve shareholder returns, which could impact the prevalence of alliance-based staffing arrangements.
Context
Secondment agreements have been a longstanding feature of Japan’s insurance distribution model but are now under scrutiny due to the risks of sales misconduct and market distortions. Nippon Life’s move signals a shift towards more cautious, regulated practices in line with government and industry efforts to raise governance standards.
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