Critical situation of Mutual organization in Japan
Hideo ISHIZUKA
0.
We have advocated the necessity and existence of social economy sector in Japan.
We understand the family of social economy is mainly composed by cooperative, mutualorganization, association /non profit organization, foundation. However, in Japan, we cansay that we have vague definition to social economy, due to lack of proper legislation of eachfactor.
At this moment, we have special cooperative laws for different types of cooperatives and“Non Profit Activity Law (so called NPO Law) in 1998. But we lack a workers cooperativelaw, association law and mutual organization law in Japan. We are now facing a crisis ofdiminishing an independent mutual organization in relation with Insurance Business Law(IBL). It is a crisis of not only mutual aid organizations but also cooperatives, namely
social economy movement in Japan.
1. Brief history of Mutual organizations in Japan.
Big transformation of the structure of Japan’s society occurred at the restoration of Meiji
in 1868. It was same phenomenon in the Western countries such like Spain’s’ revolution
in 1868, the Civil War in the United State in 1865, Italy’s Risorgimento in 1861.
Then Japan must become a member of modern industrial states and introduced manysocial tools from western countries in the field of industries and social systems. Mainly
learning from Germany, because Meiji government felt intimacy to German system andsituation such as same group that departed relatively later the industrialization, Japanestablished Tiered Agricultural Cooperative Law (so called “Industry Union” in Japan) in
1900, imitated a Raiffeisen Model in Germany. This law was for a general agricultural
cooperative which only exclude a character of a producer cooperative. Industry Union
engaged in finance or credit, distribution, processing, buying and mutual aid among
farmers and its families.
However the concept of mutual organization was not built but included in agricultural
cooperative’s activities. On the other hand, Insurance Business Law (IBL) was
promulgated in 1920, partly to cope with mutual aid and credit services by agricultural
cooperatives. Group of agricultural cooperatives, then “Industry Union” established amutual insurance company in 1940s under IBL.
After World War Second, So called the process of democratization of Japan makeflourishing a big wave of consumer and farmer cooperatives movement, including financeand mutual aid service for their members. Consumer’s cooperative law established newly.
However an idea of workers cooperative did not spread in the Japan’s society.
Now, most of all farmers are a member of agricultural cooperatives. They are big pressuregroup in politics. Agricultural bank has reached about 90 billion euros of active property.
Agricultural cooperative insurance company also has reached big total sales.
Consumer’s cooperatives have over 16 million user members in nationwide. They run also
a big business of cooperative insurance (they call it Kyosai, namely mutual organization).
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Theoretically “mutual” was recognized as “cooperative insurance” through the discussion
among cooperative scholars since 1960s in accordance with the situation of cooperative
sector in Japan. There was no clear definition of mutual organization in both theory andlegislation.
2.

Two types of Mutuals

We can classify mutual organization in two types; first is registered mutual. They arecooperative insurance. Second, unregistered mutual. Unfortunately they can not identify
who they are as legislative aspect in relation with their mutual aid service.
Table. 1 Registered Mutuals (cooperative insurance)
Legislation

Name ofCooperative(i)

Mutual organization

Federation-Union

Agricultural

Agricultural cooperative Law

JA mutual insurance

Fishery Cooperative Law

JF mutual insurance

Cooperative

Union (JA)(ii)

Fishery

Cooperative

Union (JF)(iii) Workers and Consumers

Livinginsurance

Cooperative) Law (LCL)

consumers insurance )LCL

COOP Kyosai(Insurance)

LC L

Kenmin Kyosai( Insurance

Cooperative

hood

Cooperative(Consumers

Zen.RohSai(Workers

andUnion (Zenrosai)
(iv)

Japan

Consumer

Cooperative Union (JCCU)(v) Federation of Japanese
Consumer

Cooperative

Citizens in a prefecture)(FJCC)(vi)

Each

corporationcooperative

Medium-small

enterprises

Cooperative

Law

Automobile

insurance,

mutual industry,
fire insurance, etc

Ishizuka,2009
Table 2..Unregisterd Mutual
Body

Legislation

Type of organization(i) School-

PTA, mutual aid organization(ii) Labour Union (Trade Union)

Labor Union Act--(iii) Public Interest organization

Insurance Business Law(2008bis)

LU mutual(iv)Association..

Governmental (public) mutual(v) NPONPO Act

Professional

mutual,sport

mutualDomestic care mutual, etc.

Ishizuka,20092

According to JCIA (Japan Cooperative Insurance Association), total sum of cooperative
insurance business by its 59 members business has reached 153.9 million polices, JPY1145
trillion at the end of 2007.
Table 3. Coopertive Insurance in 2007
Number of organizations

7,176

Number of Members

7,035(thousand)Number of Policies

153.9(thousand)Amount Insured

JPY1,145(trillon)

Prmiums Income

JPY6,946(million)

Craims Paid

JPY4,787(million)

Total Assets

JPY50(billion)

JCIA.2009

3. False mutual scandal
Japanese Government, taking advantage of fraud scandal of pseudo mutual insuranceorganization, called themselves “mutual”, would modify Insurance business Act. For
example, Orange Mutual, a pseudo mutual insurance, gathered much money from people
as investment fund to mutual aid business (such like care services) to swindle money.
Orange Mutual gathered 9.3 billion yen from people, promising high return. The
president of Orange Mutual, T.Tomobe was then a Member of Parliament. In 1996
Orange Mutual bankrupted and there was no return money for about 2,700 members.
The president did not be arrested because of a privilege of MP. In 2001, Supreme Court
judged guilty to Tomobe and he loosed MP. It was a big scandal. Government promised tocheckup this type of pseudo Mutual. However government intended to control otherindependent mutual which run very well under the principle of mutual aid. The reason
why government wished to control to independent mutual which government calls the“unregistered mutual” has two motives. First, they thought that the principles and valuesof insurance must be applied for a mutual organization. Second, the claim from US
chamber of Commerce in Japan (ACCJ) is to be obeying. The pretext of this change of
insurance policy was “protection of consumers or policies”.
We believe false mutual scandal is a scandal of bad private insurance company. So it
must and can restrict by current legislation such as commercial code, civil code and oldinsurance law. It is not a problem of Kyosai(mutual) but insurance company.
Table 4. Life insurance for individuals (2006)
New contract amounttrillion yen

67,046

Amount Insured

1,026,336

Premium income

277,66

Total asset

220,217

Osio.20093

4. Claim of ACCJ to Japanese Government (Financial Service Agency, FSA)
Insurance Committee in ACCJ issued their viewpoint on Kyosai (mutual or cooperative
insurance) problem to Japanese government. It is said the demands of ACCJ have reflected
the demand of American Insurance Industry which wish to enter Japanese insurance
market.
(1) The First Viewpoint (valid through September 2007) of the insurance committee
First viewpoint titled “Ensure a level playing field between kyosai (cooperative insurance,
mutual) and their private sector insurance competitors”, claimed such as follows:“ACCJ calls the Government of Japan to create a level regulatory playing field between
kyosai(mutual aid cooperatives that provide insurance products) and private insurance
supplies”., “Until kyosai and private insurance suppliers receive equal treatment, thegovernment of Japan should prohibit any expansion of kyosai products, especially productsin the third sector, where foreign companies have traditionally been successful. In
particular, there should be no amendments to the Consumer Livelihood Cooperative
Society Law that would allow the group of kyosai under the cooperative Law to expand
prior to the establishment of a level playing field. If there is expansion, all kyosai ought tobe brought under Financial Service Agency (FSA) regulation as the insurance companies
that they are”,
Also, ACCJ understands kyosai (mutual) such as follows:“Kyosai are akin to cooperatives and are traditionally formed by groupindividuals—doctors or agricultural workers, for example- who have a common interest or
profession. Kyosai collect premiums from their members and reimburse members facing
economic loss resulting from predicted risks such as death, injury, accident, and fire.
Some kyosai, known as “regulated” kyosai, are established under laws other than the
Insurance Business Law (IBL) and regulated by agencies with jurisdiction over definedindustry sectors other than financial services. “.
“The Ministry of Agriculture (MAFF) regulated the agricultural kyosai, JA Kyosai, theMinistry of Economics, Trade and Industry (METI) regulates small-medium Company’s
kyosai, Ministry of Health, Labor and Welfare (MHLW) regulated Consumer Cooperative
Insurance (kyosai).
In the endnote, ACCJ said about “unregulated kyosai”:“Other categories of kyosai are not subject to any regulation. Recently enacted legislation,effective April 2006, calls for certain larger unregulated kyosai to be subject to the same
regulations as private insurance companies, and creates an entirely new category of
insurer called “small-amount, short-term businesses.”(2) The Second Viewpoint of ACCJ (valid through May 2009)
ACCJ was seemed to recognize that their demand to the so called “unregulated kyosai(mutual aid organization, or mutual” accepted. That unregulated kyosai will disappear orchange to small private insurance company by the Insurance Business Law (IBL) which
Japanese government ‘autonomously’ changed. For a part of independent mutual in
Japan, however, it is a big problem to survive and still now to struggle to resolve legislative
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problem.
ACCJ targeted in their second Viewpoint to dissolve regulated kyosai, such as JA Kyosai(agricultural cooperative insurance), Zenrosai (consumer cooperative insurance), CO-OP
Kyosai (consumer cooperative insurance) and other major cooperative insurances.
The second Viewpoint of ACCJ again demands that regulated kyosai are subject to thesame regulation for private insurance company”. Because of;“The consumer does not distinguish between regulated kyosai (cooperative insurance) andprivate insurance companies when selecting insurance products”.
It may be some of ACCJ claims have appropriate reasons, such as a problem of equivalentcondition for regulated insurance suppliers. But problem is there is no proper rule orlegislation for Kyosai (mutual, cooperative insurance) in Japan.
(3) The Third Viewpoint of ACCJ (valid through June 2010)
ACCJ continued to claim to Japanese Government to control regulated kyosai and noted:“Regulated kyosai are not regulated by the FSA (Finance Service Agency), and benefit
from this unique regulatory environment”.
One of the causes of ACCJ is “protection for consumers. One example is the case of
Norinchukin Bank, central agricultural cooperative bank. Norinchukin Bank lost 572
billion yen in global financial market in 2008.
ACCJ repeated to keep GATS commitment for finance and insurance business “byensuring that regulated kyosai are subject to the same rules and regulations as
FSA-regulated foreign insurance suppliers.”
The prime object of ACCJ is to make American insurance companies enter in Japan’s
insurance market more easily. There is a great field as “terra incognita” in Japan. It is
kyosai or cooperative insurance and public post insurance service. ACCJ claims that
promoting liberalization will contribute to an increase in consumer benefits throughacceleration of competition by oversea companies.
However, GATS commitment, that it can be determined under to which services sectors
and under what conditions the basic principles of the GATS apply within that country’s
jurisdiction.
5. Modification of Insurance Business Law (IBL)In 2007, Insurance business Law(LBL) was modified. With relation of the concept ofmutual organization, the essential change of definition of the Law is to abolish a concept ofa mutual and exemption of apply to mutual, and introduce same rule to an insurancecompany. The old IBL defined that the concept of insurance is for” not for specific persons”,
on the other hand, mutual is for “specific persons”, namely members. So Old IBL was notcovered or controlled mutual. Then mutual were regulated by other legislation or there
were no regulation for unregistered moral person’s organizations which do mutual aid
activities.
Modified IBL defines newly the concept of a small business insurance company which iscomposed only maximum thousand policies or persons. Still at this moment there are only
20 small insurance companies registered.
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At .least old IBL defined difference between insurance and mutual. New IBL forges tomutual to become profit insurance company or disappear.
By the extension of 5 years for changing mutual to insurance company, unregistered or
independent mutual still can live till then.
Table 5. Definition in Insurance Business Law (IBL)
Definition

Old insurance Business Law

New Insurance Business Law

Insurance-

Insurance-

for not specific person

both specific and not specific person

Risk principle
Mutualfor specific person or members

Risk principle
MutualDelete. There is no mutual Act

mutual aid principle
Type of company

Insurance-

Insurance-

Stock company

Stock/mutual insurance company

company

company/mutual

insurance/ small sized insurance company
Mutual –Mutual –mutual organisation

five year extension, then change toinsurance or disappear

Ishizuka, 2009

New IBL defines new rules for both an insurance company and a cooperative insurance.
We show some rules as follows.
(i) prohibit a side job: an insurance company can not run both life and nonlife business,but can run the third sector. Using holding company, an insurance company can run bothbusiness.
(ii) Insurance company must be stock company or mutual insurance company.
(iii) obligation of reserve fund.
(iv) election of insurance accountant(v) obligation of solvency margin ratio.

6.

Measures by cooperative insurance

Parallel with the modification of IBL, in April 2005 Agricultural Cooperative Law andConsumers Cooperative Law are modified especially in the definition of insurance activity
in accordance with the modification of IBL. Some critics claim that both agricultural
cooperative sector and consumer’s cooperative sector lost the principle of cooperative anddid demutualization to become an ordinary insurance company. Cooperative insurance
sector has accepted to obey similar rule to a private insurance company. They call it“equal fitting”.
Cooperative insurance sector believe that they can survive as themselves in insurance
market. Because they measured to insurance problem consulting with ministry of6

agriculture and ministry of welfare and labor. They believe they can receive a support andhelp by their jurisdiction ministry, even though IB L will review in 2011 and then FSA plan
to abolish registered kyosai (cooperative insurance) in the context of the principle ofinsurance. ACCJ also claims abolishment of cooperative insurance, but cooperative
insurance sector believe they can survive under the protection of their ministry.
In April 2008, Consumer Cooperative Law modified to fit insurance activity. One of thenational federation of consumer cooperatives, the Federation of Seikatsu Club Consumer
Cooperatives worried about the loss of a principle of cooperative if cooperative insurance
become equal as a private insurance company through the control of separation of mutual
activities from other activities of a cooperative .
7. Crisis of Disappearing Independent Kyosai (mutual)
In Japan, Independent mutual movement has developed since 1960s. They are not acooperative but an association. Regrettably enough, there are no legislation about
association and mutual organization in Japan. So, they are called an unregistered legal
person.
We define an independent mutual organization (IMO) such as follows:(i) a principle of mutual aid, and solidarity among members.
(ii) mutual aid or mutual insurance and other service for members in order to promote
their own purpose (professional or user).
(iii) non profit activity.
(iv) non capital
We classify an independent mutual organization in three categories;(a) mutual activity by NPO:For example the National School parent association runs mutual aid (insurance) for therisk of parent and pupil activities. This type is dissolving.
(b) mutual activity by association
Domestic care service, Workers Alpinist Association, etc. This type of mutual aid
activity has almost stopped.
(c) mutual activity by disabled workshop:
Some disabled workshop has mutual aid service for disabled persons and employed staffs.
This type of activity is not insurance but government regard them as a kind of insurance.
(d) mutual activity by professional organization:
For example, the National Social Insurance Doctors Federation (Hodanren) has
organized 55 regional union and over 100 thousand medical practitioners. Hodanren has
their own mutual insurance system for members. FSA said this must be under IBL.
8. Can independent mutuals survive in Japan?
Independent mutual organizations still have not proper legislation for them. So they aresaid to obey insurance business law. What is a cause of their sustainable activity? They
assert that compulsion of abolishment of mutuals is violence of the article 23 on liberty of
association and article 24 on right of welfare in the Constitution.
Tactically, they seek exemption from Insurance Business Law. However in long aspect
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this tactic may fragile because of they could not gain their juridical identity by legislationand exemption is, in short, a temporary measure by the government..
In larger context, group of cooperative insurance also are facing critical situation of
demutualization.
I think we should make draft of mutual organization act by the hand of social economy
sector in Japan, referring to foreign mutual acts, in order to survive independent mutuals.
This is a responsibility of actors of social economy in Japan. They must help mutuals as asocial sector. If we fail this challenge, social economy in Japan also will follow same way ofperish.

Reference
ACCJ Viewpoint “Ensure a Level Playing Field between Regulated Kyosai (cooperative
insurance) and FSA (Finance Service Agency)-Regulated Insurance Suppliers, 2005, 2008,2009.
Insurance Business Law modified 2005. (In Japanese only)
N.Oshio, “Actural situation and perspective of Kyosai (mutuals)”, 2009. (Japanese)
T.Homma, “History and Future of Kyosai (mutuals)”, 2008.(Japanese)
R.Matsuzaki,”Legslation of Insurance and Mutal”,2008 (Japanese)
K.Souma, “What is mutual organization?”, 2008.(Japanese)
Other documents in japanese.

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