Probe into auto repair pricing scam could affect major insurer’s social risk

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The Financial Services Agency’s investigation into pricing collusion in auto repairs by Japanese property and casualty insurers, including Sompo Japan Insurance (SJ), could add to the major insurer’s rising social risks, says global credit rating agency Moody’s.

Mr Soichiro Makimoto, VP senior analyst at Moody’s Japan, said, “Sompo Japan Insurance’s (SJ) association with the fraud claims of Bigmotor, a used car dealer, is credit negative, as it increases the insurer’s social and governance risks. Even though the direct negative financial impact in the short term is small, the rising ESG risks will likely strain SJ’s profitability over the medium term. For example, social pressure could constrain SJ’s ability to increase its insurance premium rates to improve profitability.”

In a new development in the case, SJ announced that the company’s president Mr Giichi Shirakawa would step down over the company’s handling of allegedly fraudulent insurance claims by Bigmotor.

The timing of the resignation – first reported by Nikkei – will be decided in the future, the company said.

The insurer has been criticised for resuming transactions with Bigmotor last year while aware of the possibility of fraud by the car dealer, according to a Nikkei Asia report. SJ discussed whether to restart transactions with Bigmotor at a July 2022 board meeting where Mr Shirakawa pushed for resumption even though he recognised that allegations of fraud were strong.

At a news conference on 8 September 2023, Mr Shirakawa said, “We decided to resume business with Bigmotor on the condition that they implement measures to prevent a recurrence.” He apologised, saying, “It was a rash decision that I deeply regret.”

“I only requested an improvement because I was afraid of a backlash from Bigmotor,” he said, acknowledging that the substantial revenue from the company – JPY12bn ($81.4m) a year – was a reason the insurer did not aggressively pursue the allegations.

The two companies brought business to each other. SJ had referred customers who were in an accident to Bigmotor for repairs, while Bigmotor sold auto liability insurance for Sompo Japan as an agent.

Insurers across Japan stopped referring customers to the dealer for repairs after the fraud allegations came to light, but SJ alone resumed business with Bigmotor in July 2022. Allegations included that the used-car chain charged excessive fees after intentionally damaging vehicles, and made fraudulent insurance claims.



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