Japan: Negative interest rates shut down savings-type policies
Source: Asia Insurance Review | Jul 2016
Japan’s leading non-life insurers are discontinuing savings-type policies as the Bank of Japan’s (BOJ) negative interest rates leave them with few places to park their money.
Tokio Marine & Nichido Fire Insurance in October will become the first major player to halt all sales of savings-type plans. Mitsui Sumitomo Insurance also will cease offering such plans in April 2017 except those aimed at condominium boards. Sompo Japan Nipponkoa Insurance has stopped selling a plan that repays the premium to policyholders in instalments, like a kind of annuity, reported The Nikkei.
Holders of savings-type policies generally pay their entire premium at the time of contract. They get payouts for accidents and injuries until the end of the term, when their premium is returned nearly in full. Tokio Marine, Mitsui Sumitomo Insurance and Sompo Japan received a total of about JPY50 billion (US$467 million) in savings-type premiums for the fiscal year ended in March.
Savings-type policies were aggressively promoted in the 1980s
Insurers had aggressively promoted savings-type policies during Japan’s asset price bubble in the 1980s to try to bolster their total contract values. But sales declined as lower interest rates sapped the plans of their appeal. The costs of managing insurance offerings now outweigh the income from selling them for many non-life insurers, due to the BOJ’s negative interest rates.
Life insurance companies also are discontinuing lump-sum policies and other products. Such moves are only expected to spread.