Japan's Mitsui Sumitomo Insurance deceived client to seal major contract

Updated : 10.04.2017 / Category Economy

In March 2015, an Osaka-based section of Mitsui Sumitomo Insurance Co., Ltd., was struggling to attain the sales target for the business year that would end that month. The section, which sells cargo insurance to major companies including Daikin Industries, Ltd., Teijin Ltd. and Sumitomo Rubber Industries, Ltd., was trying to surpass about ¥1.8 billion in sales it attained the previous business year.

To reach this goal, the section resorted to "unacceptable wrongdoing," alleges a Mitsui Sumitomo Insurance insider. The company is the core member of MS & AD Insurance Group Holdings, Inc., Japan's second-largest non-life insurance company.


According to the insider, Mitsui Sumitomo provided false explanations to persuade Daikin Industries to renew a comprehensive contract that insures cargo the air conditioner maker imports and exports. The contract was due to expire on April 1. Because Daikin's trade partners are diverse, the company does not buy insurance for each cargo shipment but instead signs a deal that covers all cargo it imports and exports for one year. Daikin pays a provisional premium before the start of the insurance term.

According to copies of two sets of proposals Mitsui Sumitomo submitted to Daikin, which were obtained by Sentaku, the insurance company made three proposals. In late February 2015, the company sent a proposal for a new contract that would start on April 1 with a ¥34.55 million premium payment. But on March 19, before any deal was inked, the company made two more proposals: One for a contract starting before March 31 with the same premium as that proposed in the February document, and the other for a contract starting on April 1, but with a higher premium of ¥38.97 million.

The March 19 document explained the premium would increase from April 1 due to a higher premium Mitsui Sumitomo would have to pay for reinsurance as a result of two major accidents (each involving more than ¥10 million in damage) Daikin had in the past.

According to this explanation, Mitsui Sumitomo was spreading risk by purchasing policies from other insurers with regard to the Daikin contract. Indeed, Daikin had two major accidents that cost more than ¥10 million to resolve in July 2012 and May 2014, and this damage was covered by the insurance.

According to an internal-use-only document obtained by Sentaku, however, in-house Mitsui Sumitomo rules require it to buy reinsurance policies only when maximum insurance payments guaranteed in a policy exceed ¥2 billion. But the two documents it submitted to Daikin stated the maximum payment would be ¥1.5 billion - an amount that would not require the purchase of a reinsurance policy.

According to the insider, the person in charge of dealing with Daikin compiled a false proposal to convince Daikin it was advantageous to sign a contract before March 31. Daikin renewed the contract before the end of March and paid the ¥34.55 million premium. With this deal, the Osaka section reached the sales target for the business year. The Daikin deal accounted for 2 percent of ¥1.8 billion in sales the section chalked up that year.

Sacrificing clients to reach sales targets

Deceiving a client into signing a contract is immoral, but it does not constitute window-dressing, according to an accountant familiar with corporate accounting. "If sales in April were booked in March, it would undoubtedly be window-dressing," he said. "But the contract was signed in March, so it isn't window-dressing."

Even so, further underhand business dealings could increase as employees scramble to reach sales targets. There are indications such practices are rampant. Sentaku obtained the list of insurance contracts won by the section. According to the list, 18 of about 90 contracts started on March 31. Usually, companies start insurance contracts on April 1 or January 1, when their accounting year starts. The list, therefore, possibly indicates the section was prioritizing reaching sales targets in its dealing with clients.

Closer scrutiny of the list shows many contracts started on June 30, September 30 or December 31, all end dates of business quarters.

"Not all contracts were sealed by giving false explanations," said a Mitsui Sumitomo Insurance employee. "We often ask clients to sign contracts at the end of a business quarter or year. But, in that case, we ask for their cooperation after giving a full explanation." He added that he had to invite his clients to golfing trips or reduce premiums to gain approval to start their contracts earlier.

Daikin, however, did not receive any benefit from signing the contract early.

About one year ago, a whistle-blower reported the Osaka section's handling of the Daikin contract to management, but there has been no sign that anyone was admonished. In fact, the person who reportedly arranged the deal was promoted and transferred to Mitsui Sumitomo Insurance's London office.

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This is a translation of an article from the April 2017 issue of Sentaku. The original article can be found here.