The total number of both domestic and foreign non-life insurers active in Japan has not changed substantially over the last few years, but new entries and withdrawals from the market, changing capital investments, new affiliations with existing insurers, the announcement of merger plans, and other developments have been regular occurrences.

In all, some 36 domestic insurers (including five foreign-capitalised insurers) and 28 foreign insurers operating on a branch or agency basis were active in the non-life insurance business in Japan on August 1, 2000. However, while the number of companies has been stable, their sales force has contracted significantly, in order to achieve overall gains in efficiency. With the progress of liberalisation of the market, each non-life insurer has had to explore ways to boost its competitive power, and has been forced to make stringent efforts to hold down costs by promoting efficiency and rationalisation of its management. Agency forces have not been exempt, a reality evidenced by the decline in numbers of inefficient agents. In total, the number of non-life insurance agents, as of the end of March 2000, was 570,919, a decrease of 22,953, or 3.9%, from the previous year.

Premiums slide

Meanwhile revenues are continuing to slip, also a by-product of liberalisation. Total direct premiums written by domestic non-life insurers for fiscal 1999 amounted to ¥9,200.2 billion, down 2.8% from the previous year. Though the decrease is an improvement over fiscal 1998, which recorded a fall of 6.7%, the negative trend has continued for three consecutive years, due to the effects of premium rate liberalisation, ensuing competition, and prolonged economic inactivity. In contrast, direct premiums written by foreign non-life insurers for fiscal 1999 amounted to ¥313 billion, representing an increase of 5.9% from the previous year. This is an ongoing trend. By using television and newspaper advertising foreign insurers have raised their profile and strengthened their presence in the Japanese non-life market.

On the other hand, net claims paid by domestic non-life insurers for fiscal 1999 totalled ¥3,725.1 billion, an increase of 3.0%. This was mainly attributable to an increase in claims paid on fire insurance policies due to the impact of Typhoon Bart last summer, which resulted in the second largest claims payment – some ¥314.7 billion – ever recorded in Japan. The only more costly event was Typhoon Mireille in 1991, which cost ¥567.5 billion. The overall loss ratio in fiscal 1999 was 59.3%, a 1.8 point increase from the previous year, while the operating expense ratio stood at 38.6%, a 0.7 point decrease.

The pace of change

When the new Insurance Business Law took effect in April 1996, nobody expected that liberalisation of the Japanese insurance market would move with such amazing speed. However, with the subsequent announcement of the Japanese “Big Bang” plan in November 1996, the Japanese financial market, including non-life insurance, sprinted towards liberalisation. The results of the Japan-US insurance talks in December 1996 accelerated liberalisation of the non-life market, though restricting life and non-life insurance subsidiaries of Japanese insurers from entering into the so-called third sector, comprising personal accident, medical, and nursing care insurance.

Subsequently, based on the report submitted by the Insurance Council in June 1997, and with the Financial System Reform Bill approved at the Diet in June 1998, substantial reform of the non-life insurance rating organisation system was implemented in July 1998. Thus, unlike liberalisation in other markets, it took only a few years in Japan to establish the framework for liberalisation, and to implement it market-wide.

A highly competitive market has continued in the commercial insurance field, especially in such areas as fire, earthquake, general liability, and workers' compensation. This was brought about by the introduction of the comprehensive approval of endorsements and the notification system for commercial risks. As a result, non-life insurers are able to provide corporate customers with coverage that meets their needs quickly and flexibly.

As for personal insurances, the substantial reform of the rating organisation system in July 1998 triggered a dramatic era of competition in the Japanese non-life insurance market, with various types of products and services being launched, especially in voluntary motor. The first motor policies with differentiated premium rates were put on the market in September 1997. Emphasising lower premiums than other insurers, such as a 42% premium discount according to the risk category, this type of policy has been distributed mainly by foreign or foreign-capitalised insurers through direct sales.

On the other hand, some domestic insurers have since developed new and unique types of motor policies and services. Examples of these are bodily injury compensation cover, unlimited property damage liability cover, temporary substitute motor expenses coverage, a 24-hour telephone service to register traffic accidents, and maturity-refund-type voluntary motor policies, among others. Recently some companies have announced that they will move to their own motor policies with original premium rates, totally independent from the rating organisation.

New channels

Distribution channels have also diversified in line with liberalisation. In addition to existing agency sales, direct and mail-order sales through newspapers, magazines, television, and other media have been introduced. Internet services in such areas as motor and personal accident now provide insurance information, calculation of premiums, and policy application formats. Post offices will distribute compulsory automobile liability insurance policies for private motorcycles from April 1, 2001, and insurance distribution by banks and other financial services providers will be permitted on the same day, though the types of insurance to be distributed through the banks will be discussed by the Financial Council.

On January 1, 2001, measures to prevent radical changes in the third sector, which were obliged to be maintained as a result of the Japan-US insurance talks, will be lifted. Thus insurers in Japan, both life and non-life, will be allowed to deal with the third sector cover. Furthermore, following the radical review of the non-life agency system in May 2000, personal qualifications and agency classifications for agents, which currently provide a common standard for the non-life industry and the level of agency commissions dependent on agency classifications, will be abolished in April 2001.

New entries into the Japanese non-life market, including companies from overseas and other business sectors, and affiliations with non-life insurers, have increased. Recent major examples include the following:

  • The Society of Lloyd's, AXA, Gerling, Coface, and Cardif entered the Japanese market.

  • Gerling Global Re, Sydney Re, and TELA have established liaison offices in Japan.

  • It was announced that Yasuda Mutual Life Insurance Co and Direct Line will form, this autumn, a joint venture to sell motor insurance direct to the consumer.

  • Insurance companies specialising in direct motor marketing for individuals and other direct personal lines were established by other businesses, including Sony and a financial consortium led by Mitsui & Co.

  • Toyota Motor Co increased its capital investment in the Chiyoda Fire & Marine Insurance Co.

  • A comprehensive business affiliation between Fuji Fire & Marine Insurance Co and AIU Insurance Co was announced.

    On the other hand, withdrawals have also taken place, including Allstate Property and Casualty Insurance Japan Co, Union des Assurances de Paris, Ansvar Mutual Insurance Co, and CGU International Insurance plc, to name only some.

    Liberalisation has brought about changes in the management of non-life insurers, thus encouraging them to reorganise their business structure and management policies. These involve such merger plans as that between Mitsui Marine & Fire Insurance Co and Sumitomo Marine & Fire Insurance Co in October 2001, and plans to merge Nippon Fire & Marine Insurance Co with Koa Fire & Marine Insurance Co, Dai-Tokyo Fire & Marine Insurance Co with Chiyoda Fire & Marine Insurance Co, and Dowa Fire Insurance Co with Meiji General Insurance Co, all in April 2001. Cross-sector affiliations between life and non-life insurance companies have also been announced, such as those between Sumitomo Mutual Life Insurance Co and Sumitomo Marine & Fire Insurance Co. The expansion of business relations between Dowa Fire & Marine Insurance Co and Nippon Mutual Life Insurance Co was also announced.

    Nobuo Hara is Director and General Manager of the International Department of the Marine and Fire Insurance Association of Japan. The views expressed in the above article are those of the author and do not represent the thinking of the management of the Marine & Fire Insurance Association of Japan, Inc.