Top executives at Prudential Financial’s Japan unit will take pay cuts after a panel of outside experts issued a report on widespread employee misconduct involving customers’ money. President Hiromitsu Tokumaru and two others will take a 30% reduction in compensation for three months to take responsibility for the matter, the company said in a statement on Thursday. The investigative committee found that issues at the unit of the U.S. insurance group, Prudential Life, stemmed from structural problems in its governance framework and business model.
The case is the latest in a series of scandals to hit Japan’s insurance industry in recent years, undermining confidence at a time when households are looking to invest more of their savings. The country’s financial regulator is considering penalizing Prudential Life with measures including a temporary business suspension order, according to a person with knowledge of the matter. Prudential Life established the committee after disclosing alleged misconduct by more than 100 current and former sales employees that caused more than ¥3.1 billion ($20 million) in customer losses.
Cases ranged from staff pitching fictitious investments to borrowing money from clients. Evaluation and compensation systems reinforced incentives to prioritize short-term results, the company said in the statement. The company will revise these to encourage behavior that emphasizes long-term customer relationships, compliance and sound sales practices, it said.
Prudential Life has voluntarily halted new life insurance sales since February to focus on overhauling its governance and sales practices. It extended the initial 90-day suspension until early November, saying it needed more time to complete the reforms. Prudential Life, which began operations in Japan in 1988, has carved out a niche in a market long dominated by domestic players including Nippon Life Insurance and Daiichi Life Group.
It relies on a relatively small sales force known as “life planners,” who target affluent customers including business owners and doctors and offer highly tailored products and financial planning services. Traditional Japanese insurers, by contrast, employ much larger sales forces that have historically sold more standardized products through community-based, face-to-face networks. Prudential’s sales representatives built a reputation for aggressive selling.
At a news conference in January, company executives said a compensation structure heavily dependent on commissions had distorted incentives and contributed to breaches of internal rules. In its annual policy priorities released in September, the Financial Services Agency said it would “take rigorous supervisory action” against misconduct by insurance companies. Three years ago, authorities penalized the country’s largest property-and-casualty insurers for colluding on insurance premiums for corporate clients.
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