Japan's Financial Services Agency has started on-site inspections of a major used car dealer and a general insurer in a suspected fraud case.
Investigators entered a Bigmotor outlet and the head office of Sompo Japan in Tokyo on Tuesday morning.
Bigmotor has been accused of deliberately damaging cars brought in for repairs to increase insurance payouts.
The allegations prompted some insurers to cut ties with the dealer. But insurance giant Sompo Japan resumed dealings with the chain in July last year.
Sompo announced earlier this month that President Shirakawa Giichi would resign to take responsibility for the mistaken management decision.
Sompo Japan is also known to have set up a special team for Bigmotor in 2019 to simplify damages assessment for insurance claims from the chain.
The Financial Services Agency has been examining Sompo Japan's dealings with Bigmotor. The two firms have long kept close ties, such as introducing their customers to each other.
The agency is also looking into the corporate governance structures of Sompo Japan and its parent firm, Sompo Holdings.
Agency officials plan to take strict measures, possibly including administrative penalties, if irregularities are found.