Trouble over a foreign-currency life insurance contract signed at a bank

Among troubles related to life insurance sold at banks, a case related to foreign-currency life insurance, which has been recently heard, is shown below.

Details of the inquiry

At a bank teller's window, I requested to open a time-deposit account of 5,000,000 yen, and handed cash to the teller. The teller said, "We will put this money into your ordinary savings account. Please come here again next week." I thought they would give me a certificate of time deposit next time.

When I visited the bank next week, I was taken to a separate room. Then bank employees solicited me for something. I wondered why they solicit me like that because I just visited there to receive my certificate of time deposit. I signed and sealed a document which they brought.

After returning home, one of my family members saw the document and said, "The document shows that you've entered into a contract for foreign-currency whole life insurance", which surprised me. I heard that it was possible to cancel the contract by using the cooling-off period, so I requested the cooling-off period right away. I had no experience of investment, so I did not intend to sign a contract for investment-type life insurance. After applying the cooling-off period, the insurance company explained that a refund would be calculated in foreign currency and the amount in Japanese currency at current exchange rate would be less than 5,000,000 yen due to exchange-rate loss and foreign exchange fees. I am dissatisfied with the response.

(contract signatory: man in his 70s, unemployed)

Summarized outcome

The National Consumer Affairs Center of Japan (hereinafter called "NCAC") confirmed the following two points to check if the solicitation and conclusion of the life insurance contract had been fairly performed: (1) considering lack of investment experience of the contract signatory and his financial assets, the life insurance contract might be risky for him, and the bank's conduct might have been against the principle of suitability; (2) if the consumer's intention was properly confirmed, and if the contract made was suitable for the contract signatory in light of fiduciary duty¹

The bank which had sold the life insurance said, "We informed the background of this case to the insurance company, which responded that there was no problem because the customer had been explained that a refund would be calculated in foreign currency when exercising the cooling-off right." Then, the bank requested NCAC to handle the case through ADR procedures.² NCAC recommended the bank to discuss with the inquirer through mediation, which is less burdensome for consumers, before taking ADR procedures. NCAC explained the importance of mediation, and continued discussion with the bank to find common ground.

The bank replied, however, "There was no problem in solicitation and explanation for the life insurance. There was also no problem in the aspects of the customer's understanding, confirmation of intention, duty of explanation, consideration for the elderly, and the principle of suitability. It is regretful that there's a gap between our understanding and the customer's view."

NCAC thought it was necessary to have more discussion based on further investigation by the bank. When NCAC informed the bank's response to the contract signatory, he said, "Although I'm not satisfied with the bank's response, I don't want to drag out negotiations. There will be a big loss if the refund will be converted to Japanese yen at current exchange rate. I will wait and see the exchange rate fluctuations for the time being to convert it to Japanese yen at an appropriate time later." Then, NCAC concluded the consultation.

1. ¹ Fiduciary duty means overall roles and responsibilities of financial institutions to sincerely act for their customers when developing, selling, and managing financial instruments (e.g. when proposing a customer with less investment experience to purchase investment trust products, a financial institution should explain and recommend products which meet the customer's needs rather than touting products with high fees).
2. ² Alternative (non-judicial) dispute resolution procedures

Problems

Characteristics of troubles related to life insurance sold at banks

Recently, banks sell life insurance. However, some consumers don't know it and get in trouble (e.g. "Intending to open a time deposit account, I signed a contract", "I didn't know it was a contract for life insurance", etc.). Sales of foreign currency life insurance have become common, and troubles typical of foreign currency life insurance have occurred.³

1. ³ "Ten years from complete clearance of insurance sales at banks - new troubles related to foreign currency insurance" released by NCAC on December 21, 2017 (written in Japanese)

Problems in this case

Consumer did not understand contract details

When selling life insurance at a bank in Japan, the bank needs to observe regulations under the Insurance Business Act (e.g. obligation to supply information for consumers to understand details of life insurance and determine suitability for them, obligation to confirm consumers' intention so that sellers can recommend suitable products). In this case, however, the contract signatory didn't know that he had entered into a life insurance contract till he was pointed out by his family member.

Unable to recover the amount paid even if exercising the cooling-off right

In case of foreign currency life insurance, a refund might be given in foreign currency when exercising the cooling-off right. In the above case, the contract signatory received a refund in foreign currency, and incurred the foreign exchange loss.

Conclusion

Due to continued low interest rates, banks sometimes recommend life insurance products, which they say are more profitable asset management tools compared to bank deposits. Consumers may be interested in life insurance products when solicited by banks. It is necessary for consumers to recognize that life insurance products are different from bank deposits and to keep the following in mind.

Understanding of contract details

Don't sign a contract immediately after solicitation. It is important to have some time to consider if the life insurance is really necessary for you or your family in a calm manner. If you don't understand contract details very well, there is an option not to sign a contract. Elderly consumers may be able to avoid troubles by being accompanied by someone, such as family members.

Identification of risks associated with life insurance contracts

The amount received may be less than the amount paid depending on types of life insurance and performance. In case of foreign currency life insurance, there may be a loss due to foreign-exchange fees and exchange rate fluctuations, as in the above case. It is essential to identify risks associated with your life insurance contract.