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Stability makes insurance market even more attractive to foreign insurers

Source: Asia Insurance Review | Feb 2015

The re-election of Prime Minister Shinzo Abe with a renewed mandate for his Abenomics policies offers the Japanese insurance market the stability it requires to better meet the challenges of adverse demographics and ever-more sophisticated consumer demands. Mr Tetsuya Fujita of ReMark Japan Co Ltd outlines the key requirements for insurers in 2015, and assesses how the ongoing economic recovery makes Japan a more attractive market for investors, both foreign and domestic. 

Following the recent landslide election victory of Prime Minister Shinzo Abe – which provided a renewed mandate for his “Abenomics” economic policies – the conditions look set for continued economic recovery in Japan in 2015. On the back of that expected recovery, the Japanese insurance industry looks likely to be one of the most sustainable of global markets, attractive to both domestic and foreign insurers. 
The Abe administration believes the economy is still on a moderate recovery track. The economy is expected to show a strong rebound at the end of 2014, bolstered by the expected recovery of private consumption and exports.
Oiling the wheels
The Bank of Japan surprised markets in October 2014 with its decision to flood the market with cash to counter the effects of slumping oil prices and weak domestic demand on inflation expectations. Oil prices have tumbled more than 15% since then, helping Abenomics policies which are aimed at reigniting the economy as households and companies pay less for fuel imports. 
The Abenomics policies are expected to continue along with Bank of Japan’s quantitative and qualitative easing policy. As a result, there have been accelerated moves to sell the yen further.
While many are taking a wait-and-see-attitude until April to observe whether employers will abide by Mr Abe’s policies to raise salaries during the annual spring wage negotiations, economists retain an optimistic view for 2015. With first quarter GDP projected to increase by 2.2%, there’s little doubt that the Japanese market has emerged from negative deflation, thanks to a ubiquitous economic recovery that includes large companies in the export and high-tech sectors. 
That said, recent economic data from Japan makes an urgent case for a reinvigoration of all three arrows of 
Mr Abe’s economic policy package – particularly the structural reforms that would support the growth of domestic demand – to help restore Japan’s fiscal health which, as we begin 2015, remains the worst among major industrialised 
Key requirements for insurers
During 2014, we have seen a market growth of both Japanese life insurance and general insurance markets, a trend expected to continue during 2015. Given the political and economic stability that Japan is expected to enjoy in 2015 and beyond, there are two key requirements for the acceleration of the Japanese insurance industry.
The first is further M&A strategy in the global market, particularly in the Asia region, one that reflects Bank of Japan’s monetary easing policy and a single-digit domestic growth market environment. 
In 2014, the life insurance industry in Japan experienced more integration and consolidation. This was driven in part by the mega foreign players such as MetLife and Prudential Life USA (which acquired former AIG group operations in Japan after the Lehman shock), and by domestic activity amongst large non-life insurance companies such as Nippon Koa Sompo Japan (NKSJ) Group and Mitsui Sumitomo Aioi Doa (MS&AD) Group.
Demographics and technology – opportunities for insurers
Despite the economic optimism, one of the great challenges for Japan remains its population, which is projected to decline in the 21st century by the same margin as its growth in the 20th century – a decline exacerbated by the age-profile. Japan is facing the fastest ageing of population in the global history with a falling birth rate and shrinking working age population. With the rising cost of supporting the aging population, the social security system is in a dire state, requiring serious revamp.
With little likelihood of an expansion in welfare provision, necessitating increased self-reliance, the demographic time-bomb presents a great opportunity for insurers to fill the gap. Life and general insurers in Japan need to carefully consider how they can respond to the needs of elderly customers. These specific needs include services, product development, premium payment method, and distributary channels, amongst others, from the perspective of changing social environment and diversification of lifestyles and values.
Meeting these demands in a rapidly changing world leads us nicely to the second key requirement for insurers: further development of alternative market distribution that can coexist with the traditional agency system and sales force channel. Consumer demand for such developments – driven in part by technological advancements which continue to reshape the consumer landscape – needs to be met to provide sustainable growth.
Technology not only drives the demand for new developments, but also provides a platform for such innovation. From insurance marketing through ATMs to online sales and service, insurance marketers must harness technology and integrate distribution channels to improve consumer access to both products and, crucially, information which promotes and reinforces the value of insurance as part of their financial portfolio.
And, after several years of Big Data chatter, 2015 is the time to fully exploit the data explosion – applying predictive models to improve targeting, redesign products and refine offers to attract and retain interest in a world which makes myriad demands on consumer resources.
Related foreign investments are expected to bolster market innovation, with investors attracted by both the depreciation of the yen and the country’s enviably low insurance industrial risks, features which suggest Japan is set to become one of the most desired markets in the world. 
Mr Tetsuya Fujita is President of ReMark Japan Co Ltd.
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