Japanese insurers hungry for growth are increasingly looking at overseas acquisitions in the face of low domestic interest rates and pressure to improve their return on equity. But Meiji Yasuda Life is finding that its home market still has room for growth. We spoke to Akio Negishi about growing the life insurance market in Japan.
Recent headlines about Japanese insurers have focused on overseas acquisitions like Tokio Marine’s purchase of the US insurer Pure Group and Dai-ichi Life’s acquisition of Protective Life.
Meiji Yasuda Life is no stranger to this pressure, having taken over StanCorp Financial Group three years ago. We spoke to Meiji Yasuda group CEO Akio Negishi about the business environment for insurers in Japan, low interest rates and the imperative of the improved use of technology.
New challenges – new opportunities
“The low birth rate and the ageing of society – coupled with ultra-low interest rates – are affecting the entire life insurance market here in Japan,” Mr Negishi said. “Low birth rates and the ageing of society are predictable and will continue but when it comes to low interest rates, it is more difficult to predict, and so that makes it hard to plan. For the time being, it looks like low interest rates are here to stay.”
This will doubtless have a direct effect on the growth prospects of the Japanese life insurance market. “The largest growing segment is the senior citizens market,” Mr Negishi said. “The seniors market in Japan is ‘blue ocean’, whereas the working-age market is ‘red ocean’ already.”
There are also other signs of growth in the sector that smart life insurers are presently trying to leverage. “The second growth segment is the female market,” Mr Negishi said. “Women’s advancement in society has been accelerating in recent years and this means a great opportunity for us. The third growth segment lies in the overall shift from savings to investment. The Japanese love to save but the proportion of their investments compared to their savings is still small. However, the government is promoting a shift from saving to investment – and so this will continue to be a growing segment that insurers can tap into.”
Enhance the ‘third sector’
There is also growth to be found in Japan’s ‘third sector’. “This includes health care, nursing care and disability protection,” Mr Negishi said.
Meji Yasuda Life has not been alone in capitalising on these opportunities, but it does appear to have been very successful at it. “We have achieved growth in both revenue and earnings for two consecutive years,” Mr Negishi said. “In terms of insurance premium of the group, it’s about ¥3tn ($27.9bn) and the base profit of the group is about ¥600bn. One reason for this is that our asset management investment returns are steadily growing and our risk resilience is quite high. Our overseas business in five countries including some Asian economies also contributes to group profit and further growth is expected.”
Japan recognised and addressed the issue of the ageing of society problem earlier than many other countries. “We look at our ageing society as a business opportunity as life insurer,” Mr Negishi said.
“We have fine-tuned our ability to serve the elderly market. We are developing new products and services that are more health-related as we cater for the elderly market. The focus is on health promotion, disease prevention as well as treatment. That’s the healthcare approach we have taken as a group so that we can turn the ageing segment into a very attractive market.”
All assets must be made to work as hard as possible in the current economic climate – especially for leading insurers.
“We cannot escape managing the business in a ‘capital light’ way,” Mr Negishi said. “We have almost stopped selling yen-denominated savings products and we are putting more focus on foreign currency-denominated investment type products. But even that would not give us enough impetus for growth. So that’s where the ‘capital light’ approach comes in. In healthcare we have tried to focus on products that will deliver growth in both sales and profit.”
Low domestic interest rates have caused many Japanese asset managers to look at diversification and this includes institutional investors like insurance companies.
“In terms of allocation, we are shifting more towards foreign bonds and equities - especially US dollar-denominated bonds,” Mr Negishi said. “Ultra-low interest rates have been around for six years so far and so we have little choice but to resort to ‘capital light’ operations.”
“It’s a very difficult time to manage a business in Japan,” Mr Negishi said. “Not just in Japan, but everywhere. Such volatility in the financial market puts an extra burden on all management teams.”
Technology to streamline business
Pressure on the bottom lines is also causing insurers to look at managing their cost base – and turning technology improvements to drive savings. Meiji Life is no different. “We would like to be quite aggressive and proactive in utilising new technologies,” Mr Negishi said.
“For underwriting, for example, at this moment, we have shifted toward cashless underwriting and 100% e-transactions. When it comes to the maintenance of existing policies, already 70% have been digitalised. The level of digitalisation in payments at present is 30%, but in the next three to five years we would like to achieve 100% digitalisation for maintenance of both existing policies and payment procedures,” he said.
“For underwriting, because of the use of big data, we can now underwrite some customers who would have been rejected before,” Mr Negishi said.
Empowering the sales force is also part of the plan. “Our sales personnel also use new technology. We give them suggestions based on data analytics so that they can market more effectively and efficiently. We have 33,000 sales personnel working exclusively working for us and not only do they have PCs of their own, but they have tablets as well. From October, all of them will have smartphones too,” Mr Negishi said.
Looking to the future
In the midst of so much change, what will Meiji Yasuda Life look like in five years’ time? “We aim to be a leading life insurer engaged in local communities,” Mr Negishi said. “Our organisation, as a leading life insurer, should be rooted deeply in local communities in Japan. Our strength lies in our face-to-face sales channel. We would like to seen as a customer-friendly insurer. That’s the kind of brand we would like to establish for ourselves.” A
The interviews for this Japan country profile were all conducted one week before the nation was struck by typhoon Hagibis.
Many of the people interviewed made some mention of typhoons and other natural disasters – including earthquakes – in a matter-of-fact way: Japan has learned to cope with frequent natural disasters through hard experience.
Typhoon Hagibis, the 19th typhoon of the season in Japan, made landfall in Japan as the strongest storm to hit the country in 60 years. The disaster caused widespread flooding and landslides with over 142 rivers flooding their banks.
A commentary from JBA risk modelling said, “Much of the flooding in Japan has occurred where flood defence structures have breached or overtopped. The exact locations of all of the breaches are not yet identified - as such, the footprint represents a broad scale view of possible flooding based on reported defence breaches and overtopping.”
The size of economic losses from the typhoon are yet to be calculated, but public broadcaster NHK said that at least 30 people have been killed, 15 were missing and 177 injured. About 100,000 homes were left without power and rice fields destroyed.
Prime minister Shinzo Abe said, “The government will do everything in its power to cooperate with relevant agencies and operators working to restore services as soon as possible,” and announced that the government had set up a task force to deal with the damage.
Asia Insurance Review extends its condolences for all those who lost their lives and offers sympathy to all those impacted.