Explaining the Problems with Offering 'Insurance Options' ~ Can They Be Provided Without a License in the Insurance Business? ~

Many of you may have considered getting insurance during life events such as marriage, home purchase, or the birth of a child. Depending on the economic situation, you might also consider changing the content of the insurance you initially joined. As an insurance company, we are also willing to accommodate flexible plan changes.

For instance, when offering products or services with insurance-like options (hereinafter referred to as “insurance-like options”), such as increasing the limit of damage compensation claims or excluding deductible items on the condition of increasing usage fees, what points could potentially become legal issues?

When conducting insurance business, it is necessary to obtain a license based on the Japanese Insurance Business Act. In this article, we will explain whether providing insurance-like options without obtaining a license for insurance business would violate the Japanese Insurance Business Act, for companies considering offering insurance-like options.

What is the Insurance Business Act?

The Insurance Business Act (Japanese: 保険業法) is a law that has been enacted with the aim of:

“Contributing to the stability of the lives of the people and the sound development of the national economy by ensuring the sound and proper operation of the insurance business and the fairness of insurance solicitation, in view of the public nature of the insurance business, and thereby protecting insurance policyholders and others.”

Article 1 of the Insurance Business Act (Japanese: 保険業法第1条)

Under the Insurance Business Act, the insurance business is defined as “a business that undertakes the acceptance of insurance that agrees to pay a certain amount of insurance money in relation to the survival or death of a person and collects insurance premiums, insurance that agrees to compensate for damage that may occur due to a certain accidental accident and collects insurance premiums, and other insurance.”

According to Article 3 of the Insurance Business Act (Japanese: 保険業法第3条), the insurance business can only be conducted by those who have received a license from the Prime Minister.

Therefore, when a company that has not received a license offers products or services with insurance-like options, it is necessary to consider whether those options fall under insurance.

Does Insurance-like Options Fall Under Insurance or Guarantee Securities Business?

There are two types of licenses in the insurance business: life insurance and non-life insurance. Insurance-like options may fall under the category of non-life insurance.

If insurance-like options fall under the category of “insurance that compensates for damages that may occur due to certain accidental incidents and collects insurance premiums” or “guarantee securities business,” a non-life insurance license is required.

Insurance-like Options Do Not Fall Under Insurance

Since there is no definition of insurance under the Insurance Business Act,

it must be determined according to the economic personalityistics, the legislative purpose of the Insurance Business Act, and social common sense

Kansai Insurance Law Study Group “Commentary on the Insurance Business Law (I)” (hereinafter, “Commentary”) page 196

It is considered. Based on this perspective, when considering insurance-like options, they cannot be said to be

a system or institution that pools the same type of risk and aims to diversify the risk

Commentary page 196

When damage occurs, the company will pay compensation to the user, but the source of this compensation is not the usage fee pooled from the user by the company, but the insurance money paid by the insurance company to the company.

Also,

the policyholder transfers the risk to the insurer in exchange for the insurance premium through the insurance contract with the insurer

Commentary page 196

It is not of such nature.

The usage fee paid by the user to the company is not under the name of insurance premium, and the contract to be concluded is not an insurance contract. Also, as mentioned above, the compensation in case of damage comes from the insurance money paid by the insurance company to the company, so it cannot be said that the risk is transferred to the company. From the above discussion, it can be considered that insurance-like options do not fall under insurance.

Insurance-like Options Do Not Fall Under Guarantee Securities Business

Guarantee securities business is defined by Article 3, Paragraph 6 of the Insurance Business Act as

a business that promises to guarantee the performance of contractual obligations or legal obligations and receives consideration for it, and determines the consideration based on insurance mathematics, accumulates reserves, diversifies risks through reinsurance, and uses other methods unique to insurance

Insurance-like options can be said to fall under the “business that promises to guarantee the performance of contractual obligations or legal obligations and receives consideration for it,” but they cannot be said to be “based on insurance mathematics, determines the consideration, accumulates reserves, diversifies risks through reinsurance, and uses other methods unique to insurance,” so they do not fall under the guarantee securities business.

“Insurance mathematics” refers to mathematical calculations and theories related to insurance business, and it involves risk assessment using statistics, etc.

In the case of insurance-like options, they simply increase the annual usage fee by a few percent to increase the limit of damage compensation claims and exclude exemptions, and they cannot be said to have “determined the consideration based on insurance mathematics.”

Also, insurance-like options cannot be considered reinsurance unless the company itself is an insurance company, so they cannot be said to be “diversifying risks through reinsurance and using other methods unique to insurance.”

Therefore, it can be said that insurance-like options do not fall under the guarantee securities business.

Is it Necessary to Become an Insurance Solicitor or Insurance Agency?

Providing insurance-like options does not involve selling insurance products of insurance companies as an intermediary or broker, so there is no need to file a notification as an insurance solicitor or register as an insurance agency.

Summary

As we have seen, insurance-like options do not fall under the category of insurance, and it is believed that there is a low risk of violating the Japanese Insurance Business Act (保険業法) by offering insurance-like options without obtaining an insurance business license.

Furthermore, there is no need to notify as an insurance solicitor or register as an insurance agency. However, depending on the content and sales format of the option, it may be considered as insurance. If you are concerned, it is advisable to consult with a lawyer.

Introduction to Our Firm’s Measures

Monolith Law Office is a legal office with high expertise in both IT, particularly the Internet, and law. It is common to create a contract when concluding an insurance contract.

Our firm handles the creation and review of contracts for various cases, from companies listed on the Tokyo Stock Exchange Prime Market to venture companies. If you have any trouble with contracts, please refer to the article below.