Major life insurance companies in Japan have begun to enter the small-amount and short-term insurance (SASTI) market, a comparatively new market created through a 2006 amendment to the Insurance Business Act.
Sumitomo Life made Aiaru Syougakutankihoken Corporation a subsidiary in 2019, and Dai-ichi Life established Dai-ichi Smart Smallamount and Short-term Insurance Company in 2021. More recently, in April 2022 Nippon Life launched Nissay Plus Small Amount and Short Term Insurance as a subsidiary.
In its report titled "Japan’s Insurance Market 2022", The Toa Reinsurance Company noted that SASTI companies have to limit themselves to selling insurance in the form of protection cover (only) for small amounts and a limited term of one year, or two years at the maximum in the case of non-life insurance. The capital required for entry is a low hurdle of JPY10m ($70,350) or more. Enterprises ranging widely from real estate companies and consumer electronics mass retailers to trading companies have entered the market through the establishment of SASTI companies.
While insurance companies are subject to a licensing system for sales of their products, SASTI companies are subject only to a registration system (that requires only a screening process), which enables flexibility in developing products. Therefore, non-life insurers established such companies within their groups early on, and have been serving the SASTI market with a focus on fire insurance for renters.
On the other hand, life insurers have been cautious about entering the SASTI market because they generally issue policies with longer terms of 10 years to whole life, so policies with terms limited to one year were not a particularly attractive business.
FinTech as catalyst
However, the emergence of FinTech changed that. Companies have been increasing the number of insurance products available for purchase by smartphone, enabling them to approach customer segments comprising people who had been reluctant to buy insurance, particularly young people. SASTI is ideal for identifying and commercialising products that match particular demographics, and for flexibly addressing a wide range of customer needs with a broad portfolio of insurance products.
Entering the SASTI market helps life insurers approach more customers. Major companies also think that the information they collect through broadly based marketing will enable group synergies. In fact, companies that are part of major life insurance groups are providing flexible and distinctive new products.
Aiaru provides coverage in niche markets to meet specific target needs, such as medical insurance for women undergoing fertility treatment. Backed by lifestyle changes and the ubiquity of digital technology use, Nissay Plus entered the market in April 2022 and launched products that cover risks during pregnancy and after childbirth based on collaboration with partner companies.
All of these products take advantage of the characteristics of SASTI and would have been difficult to quickly develop and sell within the conventional framework of an insurance company.
Japan’s life insurance market is contracting because the population is aging, so life insurance companies need to identify new needs. A point of interest will be how life insurers serving the SASTI market are able to generate synergies among group companies to develop growth strategies.