Government calls for disclosure of sales commission from life insurance products with market risks

On September 18 2015 a government policy encouraging financial institutions to act in good faith on behalf of customers was published. The policy also called for financial institutions – such as banks selling investment trusts or savings insurance on behalf of insurers – to be more transparent in disclosing their sales commission. The driving force behind the policy was the Financial Services Agency's concern that some banks had been selling investment trusts or savings insurance that enabled them to make more commission, with no regard for customers' interests.

In August 2016, in response to the agency's concerns, many banks announced that they would disclose their sales commission rates regarding life insurance products with market risks. Further, on September 1 2016, the Association of Life Insurance Companies published non-binding basic principles for such disclosures.

The basic principles are as follows:

• 'Sales commission' refers to any sum paid to a financial institution as compensation for selling life insurance products with market risks.
• During the course of selling life insurance products with market risks, life insurers should provide to financial institutions, in writing or by electronic means, information that enables customers to recognise the sales commission – in particular, the rate or calculation method.

These principles apply only to the sale of life insurance products with market risks by financial institutions. Whether these regulatory developments will affect sales of other insurance products or sales of such products through other channels, such as insurers, will need to be closely monitored.

For further information on this topic please contact Kosuke Inada at Chuo Sogo Law Office PC by telephone (+81 3 3539 1877) or email ([email protected]). The Chuo Sogo Law Office PC website can be accessed at www.clo.jp.

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