Japan Post Response Aggravates Insurance Sales Scandal

August 1, 2019 – The Japan Post Holdings Co. group was late in responding to a highly publicized scandal in which postal workers allegedly sold some 183,000 Japan Post Insurance Co. policies in ways that were against the best interests of customers, including illicit sales of products.

The postal group is now trying to get to the bottom of the irregularities, but its tardy response to the scandal has only aggravated the situation, further undermining public confidence in its management. The managerial staff’s responsibility for disregarding laws and regulations is bound to be called into question.

“Looking back now, our awareness was insufficient,” Japan Post Holdings Co. President Masatsugu Nagato acknowledged during a press conference on July 31, offering his first formal apology over the scandal.

The series of revelations of allegedly illicit sales of by Japan Post Insurance products first came to light in late June, to which Japan Post Holdings reluctantly responded.

At a regular press conference on June 24, Nagato refuted reporters over the large number of instances of customers being forced to switch to allegedly unfavorable insurance plans, saying, “I don’t think there were any clear legal violations.”

A senior Japan Post Insurance official announced on June 27 that the company was poised to conduct additional investigations into the matter, but said, “I’m shocked to see media reports saying our practice was inappropriate. There were no procedural problems.”

After the wrongdoings were publicized by news organizations one after another, Japan Post Insurance President Mitsuhiko Uehira and Japan Post President Kunio Yokoyama held a news conference on July 10, where they finally admitted to the irregularities. Shortly afterward, however, they instructed postal offices across the country to “engage in sales activities as normal,” exhibiting their poor recognition of the gravity of the issue.

Criticism and complaints from customers continued to pour in, while officials of the Financial Services Agency, the supervisory body of the Japan Post Holdings group, and the Ministry of Internal Affairs and Communications lambasted Japan Post and Japan Post Insurance, saying there was no end in sight for the scandal.

It was only after such mounting outcries that the postal companies changed their attitude and were compelled to offer a full-scale apology. As they expanded the period subject to investigation into the scandal to five years, more and more irregularities came to the surface, with the number of contracts allegedly sold in a dishonest manner swelling to ultimately top 180,000.

When asked by reporters about the postal group’s handling of the problems, Nagato noted, “The number of (problematic) cases grew to a different dimension, prompting us to change our recognition.”

Nevertheless, the series of media conferences only highlighted the officials’ poor risk awareness. While Japan Post Insurance President Uehira told reporters on July 10 that the company was unaware of the problems when it publicly offered its shares in April, it emerged on July 29 that the firm had already been aware of complaints from customers over questionable contracts.

Kazumasa Iwata, chairman of the government’s Postal Privatization Committee, lashed out at the postal group saying, “It’s problematic.” Japan Exchange Group Inc. also suggested that it would launch an investigation into the case.

With regard to these moves, Nagato defended his group, saying, “We are completely innocent,” citing reasons including the public offering having passed the screening of a securities firm. He even defied criticism saying, “No kidding.”

The three companies also lack concerted efforts over their future sales policies. While Japan Post has decided to halt the sales of insurance policies of Nippon Life Insurance Co. and other companies, it is set to continue the sales of cancer insurance policies of Aflac Life Insurance Japan Ltd. This is because Aflac’s U.S. head office did not comply when Japan Post sounded out about suspending sales in late July. About 25% of Aflac’s new contracts for cancer and medical insurance policies come from postal offices across Japan.

As of March this year, the Japan Post Holdings group had 215,412 regular workers, 90% of whom are Japan Post employees. Japan Post has a pyramid structure, with the head office and 13 branch offices governing approximately 24,000 post offices nationwide. A person close to a post office said, “It is too colossal for governance to work effectively, a situation dating back to when it was run by the state. The higher up the officials are, the more they evaluate workers based only on figures. Middle managers won’t report information that could undermine their reputations.”

Meanwhile, voices of distrust are growing among customers. A 62-year-old man in Gifu Prefecture in central Japan, who was forced to sign duplicate contracts, commented about the number of policies allegedly sold in an illicit manner shooting up twofold, “My trust in post offices is fading away.” A woman in her 30s in Kagoshima Prefecture, southwestern Japan, fumed, “The 180,000 cases are only from the past five years, and I assume there may be more victims. The president’s press meeting only gave me the impression that he thinks the misconduct was carried out at employees’ own discretion.”

While Nagato has made it clear that the postal group will set a “customer-first” sales target from fiscal 2020 onward, it would be inevitable for the group to have to lower sales quotas.

“A castle built over three years could fall in three days. We seriously damaged the brand of post offices,” Nagato told a press conference. “It would not be easy to recover the previous image, but our mission is to pass down the baton,” he said, emphasizing that the group aims to start over.

However, Katsuhiko Nakamura, a senior technical analyst at Mizuho Securities Co., said, “If they don’t set sales quotas and leave it to natural outcomes, then their sales could fall by dozens of percent. It could greatly impact not only Japan Post Insurance, but also the management of Japan Post Holdings.”