FSA revokes Big Motor’s non-life insurance agency licenses

On Friday, the Kanto Local Finance Bureau issued orders to Big Motor, BM Holdings, and BM Hanaten (collectively referred to as “BM Group”) for administrative dispositions pursuant to Article 307(1)(iii) of the Insurance Business Act. Their registrations as a non-life insurance agency shall be revoked as of November 30, 2023.

The following is a translation of the rationale for the decision provided on the Kanto Local Finance Bureau website.

Business Management System (Governance)

While BM Holdings (“BM”) has BM Hanaten as a subsidiary, both companies only have one director serving as president and have no head office organizations, so BM’s Board of Directors substantially makes business execution decisions for the entire BM Group including these subsidiaries.

In this situation, as a stock company that is classified as a company with board of directors and a large company under the Companies Act, BM has established articles of incorporation and internal regulations in accordance with the provisions of said Act, with the Board of Directors deciding business execution policies and representative directors, directors, and other directors executing operations, thereby establishing a governance system.

However, since BM was essentially the owner’s company of the founder and former president and former deputy president, the roles and authorities of its directors were not clarified, and decisions on and approvals of business execution were essentially made through unofficial discussions among directors centering on the former president and former deputy president.

In this actual management condition, due to the former president and deputy president’s belief that profit expansion is the top priority for company management and excessive desire to manage the company as they want, they neglected to build a governance system that should be normally established by a large company, including establishing systems to ensure compliance with laws and regulations. And while internal regulations and rules existed, the former president and deputy president directly “controlled” employees’ actions and practical business operations through the “business plan” at the center of the company’s management that they themselves drafted.

Therefore, BM’s business management system is in a condition that cannot be recognized as fulfilling the functions required by the Companies Act, as described below. In addition, the Board of Directors and representative directors, other directors and auditors have neglected initiatives to normalize the business management system, which is the premise of an appropriate insurance solicitation control system.

• Despite the Companies Act’s provisions requiring the directors of a company with a board of directors to report the status of business execution to the board at least once every three months, it has been confirmed that the board has not held any meetings in the approximately seven years since October 2016, except for one meeting in December 2020, and various resolutions stipulated by laws such as the Companies Act have not been made.
• The Board of Directors has not established systems to ensure conformity with laws and regulations, such as appointment of officers responsible for legal compliance, establishment of departments in charge, and has not established internal audit departments to verify and evaluate the appropriateness and effectiveness of internal controls, etc. In addition, despite the internal control systems stipulated by the Companies Act and Ministry of Justice Ordinances that should be developed to ensure appropriate business operations, the company has neglected such system development. Moreover, in violation of the provisions of the Companies Act and Articles of Incorporation, BM has not announced settlement of accounts except for cases where it is required for company reorganization registration.
• The internal rules stipulate establishment of management meetings etc. where the board of directors conducts deliberations on and overall coordination regarding general business management issues. However, due to lack of systems to review internal rules in response to changes in laws, management policies, etc., major rules concerning business management, etc. have been left outdated since the last revision in September 2015.
• For accounting audits and business audits required of auditors under the Companies Act, it has been confirmed that at least since fiscal 2020, accounting audits have not been conducted, and business audits such as verifying the status of directors’ duties through exchanges of opinions have not been carried out either.
• Despite regulations in the “business plan” by the representative director to “respond to complaints at speed,” and “report any complaints, no matter how minor, to the president,” the president has neglected to establish systems including designation of an officer in charge of complaints control, establishment of departments to control overall operations, and formulation of control rules. As a result, it is unable to grasp all statuses of accepted complaints and unable to check the status of complaint control and responses.

In addition, within the BM Group, many employees have resigned each year due to inability to accept values cultivated internally by the former president and deputy president and personnel evaluations, remuneration systems based on those values. Meanwhile, expansion of the store network necessitated personnel increase, so the company had no choice but to hire a large number of new employees each year.

However, the BM Group needed to provide these newly hired employees with systematic, unified, high-quality education and training covering operations including insurance sales, but it was extremely difficult to develop skilled human resources.

Nevertheless, the Board of Directors, etc. have not taken any countermeasures.

Development of Systems to Ensure Proper Insurance Solicitation

The insurance department in charge of BM Group’s insurance solicitation and insurance management operations launched initiatives to “improve quality” involving education/guidance and monitoring, etc. for insurance solicitors in fiscal 2017 in response to introduction in the revised Insurance Business Act enforced in May 2016 of obligations including information provision to customers, ascertaining and confirming their intentions and developing insurance solicitor systems.

In addition, to secure human resources needed for “quality improvement initiatives,” the management team including representative directors, directors and auditors greatly increased acceptance of employees seconded from insurance companies and assigned them to the insurance department and respective stores to provide guidance and support aiming to improve insurance solicitation quality, conduct monitoring and complaint analysis, etc. BM also increased allocation of its own personnel to the insurance department to boost its organization.

However, from fiscal 2020 onward, due to the impact of the spread of COVID-19 infection and other factors, managing directors, especially following the previous deputy president’s instructions, have turned to profit-centered management, thoroughly eliminating unprofitable businesses and activities as the number of used car sales declined significantly. Emphasizing sales promotion in insurance solicitation operations as well, management focused on promoting business.

On the other hand, management has neglected the duty to develop systems to ensure proper insurance solicitation by neglecting unprofitable businesses and activities with checking functions, etc., and such conduct has violated Article 294–3(1) of the Insurance Business Act that prescribes the obligation to develop such systems. Details are as follows:

• In June 2020, on the judgment by the former deputy president that the complaint response call center business did not generate profits commensurate with costs, management abolished that business.
• Furthermore, in July 2020, initiatives involving insurance department guidance and training at each store were discontinued. By also allocating personnel from discontinued businesses and other sections to support sales activities at each store, the organization of the insurance department declined from 23 persons in September 2020 to 12 persons. Thus, the departments lost resources and skills needed to maintain the minimum control system for guidance/education of solicitors.
• In October 2020, when the manager of the insurance department at the core of leading the “quality improvement initiatives” resigned, management appointed a designate manager from the sales headquarters instead of the former manager. As a result, the “quality improvement initiatives” were discontinued, and the insurance department’s function to check the sales departments also declined.
• Furthermore, in February 2021, management eliminated the positions of insurance promotion committee members who carry out administrative and instructional work regarding insurance solicitation in respective stores on the grounds that corresponding effects were not achieved in light of costs. Consequently, organized education, control and guidance of solicitors are not conducted within the BM Group.

Moreover, while internal rules stipulate that internal audits concerning insurance solicitation will be carried out by the independent internal audit office from sales departments, such internal audit office has in reality not been established and audits by said office are not conducted either.

Upon verification of the actual conditions of insurance solicitation in BM Group in the on-site inspection, as described below, there have been found numerous cases in violation of Article 300(1) of the Insurance Business Act and cases inappropriate in light of said law.

• In examining 148 contracts recorded in the insurance solicitation system as concluded in an extremely short period of time, it has been found in 122 cases that solicitors have not provided comprehensive explanations on important matters in solicitation. In addition, solicitors not delivering important matters statements and other inappropriate solicitation acts deemed systematically conducted have been confirmed in on-site investigations as well. Such acts violate Article 300(1)(i) of the Insurance Business Act.
• In confirming 1,079 agents responsible for contracts switched to insurance sold by BM Group from those by other companies, there have been found responses from a total of 9 agents providing special benefits prohibited under Article 300(1)(v) of the Insurance Business Act, such as discounts on vehicle prices on the condition of joining insurance contracts.
• Realizing through management responses in on-site inspections the circumstances where orders were issued within the company, including from directors, requiring that solicitors and subcontractors join BM Group’s insurance policy, we verified the status of 88 solicitation contracts by agents through extraction, confirming 14 cases that were inappropriately solicited, such as where pressure from store managers forced employees to join. In also extracting 149 insurance contracts concluded by subcontractors and asking BM for confirmation, 121 cases were found as having been subject to inappropriate solicitation under pressure.

Conclusion

In conclusion, the fundamental factor of these inappropriate conducts at the BM Group can be attributed to the existence of 1, motives that would increase their own income or maintain high levels of remuneration, in the backdrop of serious flaws and issues in the business management system referred to above; 2, an unhealthy corporate culture that may “justify” recognition that illegal conduct would be tolerated to increase profits under the excessively profit-centered management stance; and 3, opportunities to practice misconduct due to compromised functioning of the system to detect and verify internal and external fraud and inadequacies.

Therefore, the BM Group should do away with past profit-centered company management based on successful experiences and its dictator style of owner’s company, and thoroughly transform into a company that meets the expectations of a wide array of stakeholders including customers by complying with laws and regulations. After completely revamping business management systems and human resource development from scratch, it should reconstruct itself into an insurance agency that aims to thoroughly comply with laws and implement business in a customer-oriented manner with an insurance solicitation control system built on appropriate governance and high-quality human resources. However, following suspension of support from insurance companies including secondment of employees due to withdrawal triggered by a series of insurance claims fraud cases, BM Group has lost human resources with knowledge required to develop the systems. In addition, there is no prospect of support for system development from insurance companies since all insurance companies have adopted a policy to cancel their contracts as insurance agency with BM Group by November 30, 2023, so rebuilding would be extremely difficult.

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