Commercial insurance premium growth in Japan is expected to improve to 5.3% in 2016, said global reinsurance giant Swiss Re in its report, “Japan’s Commercial Insurance Market”.
One factor boosting growth is the decision by the Japanese government to delay the second sales tax hike from last October to April 2017, a move which should help maintain business and consumer sentiment, said the report. By line of business, fire, casualty and motor insurance should continue to drive sector growth, it said.
The economic recovery was weak, but latest indicators reflect a gradually improving growth backdrop. Real GDP growth is forecast to improve 1.3% this year, from an estimated 0.7% in 2015. Commercial insurance premiums are estimated to have grown modestly in 2015, up 2.8% to JPY4,088 billion (US$34 billion).
While economic growth is the main driver of demand for commercial insurance, several underlying trends are shaping the longer-term outlook. Japan’s declining manufacturing activity and industrial assets do not bode well for the sector. That said, increased awareness of business interruption risk will likely support demand for property insurance, the report said.
Also, the growing services industry should boost demand in liability, as services firms are relatively more exposed to liability and financial risks. Moreover, many large Japanese firms operate globally and are exposed to different liability regimes via their exports and foreign subsidiaries. The interplay of different macro, financial sector, regulatory, and physical and virtual realities, alongside societal and political dynamics in the markets in which they operate, create a complex liability risk landscape. Increasing exposure to foreign liability risks will likely generate more demand for global liability cover.
Technological developments are also changing the environment. For example, cyber security represents a significant source of both reputational and business interruption risk, and has become an increasingly important item on the corporate agenda in recent years. While different industries are seeking coverage for new and emerging risks, regulators are tightening requirements over data privacy and consumer protection, among others. Increasing awareness of the potential damage to reputation and business interruption will likely drive growing demand for liability and cyber risk coverage.