Reform on the Insurance Law in Japan:
A Perspective of New Japanese Insurance Law
Akihiko Umetsu
■Abstract
On M arch 5, 2008,a proposed bill on Insurance Law reform was published in Japan.The billʼs aims were the modernization of the current outdated insurance regulations and the protection of policy-
holders and the insured.In this paper,I will introduce the proposed billʼs three important amendments: reform of the duty of disclosure system,the problem of over‑insurance ,and matters concerning acci-
dent and illness insurance.While the contents of these reforms will doubtless contribute to the protection of both policyholders and the insured and I am in broad agreement with their objectives ,some residual problems remain.One of these is the issue of life policies for minors,i.e.whether death benefits on such policies should be capped.It is the authorʼs contention that some form of restriction ought to be applied.
■Keywords
proposed bill on Insurance Law reform, duty of disclosure,over‑
insurance,accident and illness insurance,life policies for minors
＊This manuscript is that of a report given at the Korean Insurance Soci- ety in Seoul on March23, 2008.
/Acceptance on October2, 2008.
【韓国保険学会報告】
Ⅰ．Introduction
The current Insurance Law in Japan was enacted in1899,as part of the Commercial Code.In the century and more since its enact-
ment,although economic conditions and lifestyles impacting upon insurance have altered dramatically ,there has been no lack of debate on and proposals for insurance law reform by scholars and scholarly societies .Work has thus begun on amending current and drafting new insurance legislation in order to modernize the outdated Insurance Law and protect policyholders and the insured. To this end,a proposed bill on Insurance Law reform was published on March5, 2008 .
The purpose of this paper is to introduce three important amend- ments regarding this proposed bill,after which will follow a discus- sion on whether the objectives of the Insurance Law reforms can be achieved.Although not detailed in the proposed bill itself ,other points worthy of note will also be discussed .
Ⅱ．The Amendments
A. Duty of disclosure on the part of the policyholder or the insured The first point taken up here will be the reform of the duty of dis-
closure system when insurance policies are entered into.Here,there is an affirmative duty on the part of the policyholder or the insured
Reform on the Insurance Law in Japan
1) To cite but three examples,there have been reform proposals put forward by the study groups on the general insurance regulatory sys- tem in1995,on accident insurance law in2003and the life insurance regulatory system in2005.
2) Company regulations,previously part of the Commercial Code,had become ʻCompany Lawʼseparately in 2005.
to disclose to the insurer all material facts.Under current regula- tions,the policyholder or the insured must disclose all material facts voluntarily and to the best of his/ her ability and should refrain from disclosing erroneous or untrue information to the insurer (Commer-
cial Code 644, 678).Information with regard to objects or persons insured is generally the responsibility of the policyholder or the in-
sured.This duty of disclosure is helpful in redressing information imbalance concerning insured risk between insured and insurer at policy inception.Nevertheless,in the sphere of domestic or personal insurance,the policyholder or the insured is not an expert on the insurance system and has therefore no way of knowing what infor-
mation (s)he should disclose to the insurer and what information might be necessary in evaluating risk.
It is advocated in the proposed bill that the policyholder or the in- sured,at inception of policy,must disclose to the insurer any facts the insurer should request concerning the possibility of an occurrence of the damage or accident insured against ( 4, 37, 66).Thus,
information which the policyholder or the insured must disclose to the insurer will become restricted to matters specifically requested by the insurer and by implication the new duty of disclosure on the policyholder or the insured will become a passive one .
Furthermore,the proposed bill provides that nondisclosure or mis- representation on the part of the policyholder or the insured grants the insurer the right to rescind the policy .However,a policy may only be rescinded in cases where facts have been deliberately with-
held or where gross negligence is apparent ( 28.I, 55.I, 84.I).In addition,if an insurance intermediary with no right to represent the insurer when entering into a policy should hinder duty of disclosure
on the part of the policyholder or the insured,or should induce the policyholder or the insured not to disclose the true facts ,or to dis-
close untrue facts,then the insurer is also legally prevented from rescinding the policy( 28.II②, 55. II②, 84.II②).
Insurance intermediaries play an important role when consumers want to obtain insurance coverage .It has been claimed that con-
sumers entering into insurance policies place great weight on what they are told by insurance intermediaries and treat them as special-
ists on insurance and the insurance business.The activities of and soliciting by insurance intermediaries are essentially not regulated under contract law(Insurance Contract Law )but under the business regulatory act(the Insurance Businesses Act ) .Should an insurance intermediary induce a policyholder or an insured person to obstruct or hinder due duty of disclosure, then under the act they are liable to sanction and the insurer to which they are affiliated liable for any loss which a policyholder or an insured may incur .
B. Over‑insurance
I now turn to an issue peculiar to non‑ life insurance.With non‑life insurance,if the amount insured is over the insurable value (over‑
insurance),then the excess becomes void under the current Insur- ance Law(Commercial Code 631).This rule is based on the notion that there is no insurance without interest (indemnification theory).
3) The Insurance Businesses Act prohibits insurance intermediaries from hindering duty of disclosure by the policyholder ( 300.I②・③).
4) Insurance Businesses Act 317‑2⑦.
5) Insurance Businesses Act 283.I.Further,ʻan Insurance Brokerʼ( 2 )is directly liable for his performance to the client(Civil Code 415, 709).
Reform on the Insurance Law in Japan
In practice,however,the insured seeks over‑insurance in anticipa- tion of a future rise in the price of the goods insured,rather than with the intent of gaining undue profit .
As long as an over‑insurance has been entered into in good faith and gross negligence has not occurred at the time a non ‑life insur-
ance policy is initiated,then the proposed Insurance Law bill pro- vides that a policyholder or an insured can void the excess ( 9).
Further,after a policy has become effective and a marked decrease in insurable value occurs,then the proposed bill grants the policy-
holder the right to reduce the amount insured,or decrease the agreed insurable value and the premium ( 10).It follows from this provision that the excess of an insured amount in an over‑insurance should not be considered absolutely void and that since an over ‑
insurance policy is taken as being effective as a whole from its issue date,the policyholder should have the right to request a reduc-
tion in the amount insured and in future premiums.
Should,however,a policyholder enter into an over‑insurance pol- icy with the intention of unlawful gain,then,quite naturally,the policy becomes null and void under Civil Code 90 (public policy provision).
C. Accident and illness insurance
The final issue I would like to consider is the new legislation includ-
ed in the proposed bill on accident and illness insurance.This insur-
6) It has been pointed out that Commercial Code 631is in conflict with 637.Should insurable value decrease markedly during the policy period,the policyholder or the insured is permitted to reduce the amount insured as well as the premium (Commercial Code 637).
ance is for the medical or inpatient hospital care costs of the insur- ed.When damage to the body of the insured falls within the scope of accident and illness insurance, two methods of providing benefit payments are available.One is offering fixed benefits to the insured or the policyholder,the other the payment of the insuredʼ s medical care expenses by the insurer.As under current law there are no provisions for direct regulation of accident and illness insurance ,
interpretation has been based on analogy with current life insurance or non‑life insurance rules,or even both.
How to position accident and illness insurance within the new Insurance Law has been problematic .The proposed bill suggests accident and illness insurance rules be provided in a separate chap-
ter(Ch.4 ( 66〜96))on the provision of fixed benefit payments.In this way,when a policyholder falls within the scope of a third partyʼs insurance,the third partyʼs consent is necessary to make the policy effective.
Cases of accident or illness causing the death of the insured should also be properly categorized as the fixed benefit payment type.On the other hand,accident and illness insurance as an indem-
nity policy should be categorized as non‑life insurance( 2⑦),since in this type of accident and illness insurance ,the insurer can pro-
vide benefit payments to the insured alone.
Ⅲ．A Residual Problem
There has been some debate on whether a restriction should be placed on death benefits in the case of life insurance policies for minors.Since Japanese insurance law has not adopted a ʻ doctrine of insurable interestʼwith regard to life insurance policies, the
Reform on the Insurance Law in Japan
contracting parties(the policyholder and the insurer)can,by mutual consent,agree to any sum for death benefits .Setting an unnecessari-
ly large death benefit in the case of a minor may,however,give rise to moral hazards in the life insurance field .The proposed bill has shelved this issue,claiming the insurance business already deals with the problem satisfactorily.
I believe the ʻdoctrine of insurable interestʼcan be applied in the interpretation of life insurance policies .The question of who should be the legitimate beneficiary of a life insurance policy ,for example,
should be determined by deciding to whom the insurable interest of the life insurance policy belongs. It is natural that death benefits paid out in a life insurance policy be limited by an estimate of the insurable interest of the insured. In this sense,then,there should also be a financial restriction on death benefits in life insurance pol-
icies for minors .
This opinion is currently a minority view in Japan,however.If the ʻdoctrine of insurable interestʼis to be applicable to life insur-
ance,then the question of whether Insurance(Contract)Law should impose financial restrictions on death benefits becomes very thorny .
7) In third party life insurance policies entered into by parents on behalf of their child,there is a danger the parents may seek to end the life of the child in order to obtain death benefits. There have,
however,been few such cases reported.
8) The insurance business is currently considering whether to limit death benefits for minors under15 years of age to ¥10m.
9) I leave how such an amount should be calculated to a future study.
Ⅳ．Conclusions
The three points I have raised in this paper concerning the proposed bill on Insurance Law should,I believe ,contribute towards the pro-
tection of policyholders and the insured.Duty of disclosure on the part of the policyholder or the insured under current rules has been an especial cause of friction with insurers. It is to be hoped that this dutyʼs move from an active to a passive one will lighten the burden on policyholders and the insured .
Since the role of insurance intermediaries in taking out policies is considered an important one by policyholders and the insured, I believe intermediary performance and their commitment to policy-
holders or the insured should be taken into consideration when judg- ing breaches of the duty by the latter.
(The author is professor of law at Tohoku Gakuin University)
After giving this report to the Korean Insurance Society, the proposed bill was approved on March 30, 2008 (Heisei 20), as the ʻ Insurance Lawʼ, Law no. 56 of 2008 (Heisei 20). It was issued on June 6. It will come into force as prescribed by a future governmental order to be established not later than two years from issue.
この論文は，日本保険学会から派遣されて2008年度韓国保険学会で行った発表 内容である。
Reform on the Insurance Law in Japan
