Japan' s insurance markets - a sea change
No. 8/2000
Three major trends can be observed in the Japanese marketplace: mergers and acquisitions among insurers, the emergence of new competitive parameters and the convergence of financial services. Financial market deregulation, globalisation and the e-revolution are rapidly reshaping the competitive landscape of Japan's USD 500 billion insurance market, the world's second largest. A recent crop of company failures highlights industry concerns, which are particularly severe in the life insurance sector. As a result, many domestic insurers are doing away with traditional business practices and embracing more cost-efficient alternatives.
Consolidation
Japanese insurers are actively seeking consolidation to stay competitive, turning towards mergers and alliances in an effort to solidify existing business relationships and fend off potential contenders from overseas and other domestic industries. Swiss Re's latest sigma reports that tie-ups can be observed between life and non-life insurers as well as across existing keiretsu boundaries, i.e. company conglomerates. The completion of planned mergers will result in Japan becoming one of the most highly concentrated insurance markets in the world. The post-merger top-five insurance companies (life and non-life) are estimated to account for around two thirds of market premiums. Small and medium-sized companies may have to find niches where they can offset inherent cost disadvantages.
Competitive environment
Today, new competitive parameters are emerging. The past few years have seen the reduction of regulatory constraints that have fuelled product innovation and resulted in the proliferation of alternative distribution channels in Japan. The completion of tariff deregulation in July this year has added another new dimension to competition. Domestic insurers now face an environment of competitive underwriting. They will have to reduce costs to offset price competition and the expected adverse effects on premium income. Non-Japanese companies should be well-equipped to take advantage of the more liberal environment, but they should not overestimate the pace of change given the strengths of domestic incumbents with their solid capital base and superior distribution networks.
Services convergence
The recent formation of giant financial conglomerates in Japan has laid the groundwork for the integration of financial services to an increasingly sophisticated clientele. Currently planned mergers will result in four of the world's five largest financial groups being Japanese companies. Together with their insurance allies, they will be well placed to meet new and additional client needs as well as to rationalise distribution by, for example, selling insurance products via banks. Further relaxation of regulatory constraints is likely to facilitate this trend.
As the Japanese economy returns to sustainable growth, Swiss Re's sigma projects life and non-life business to increase by 2.2% and 1.9% p.a., respectively, in real terms between 2000 and 2004. The study concludes that the outlook for Japan's insurance markets remains promising.
This publication can be downloaded in English, German, French, Spanish and Italian.
Download "Japan's insurance markets-a sea change"
Download "Japans Versicherungsmärkte im Zeichen eines einschneidenden Strukturwandels"
Download "Un vent de changements souffle sur le marché assurantiel japonais"
Download "El mercado del seguro en Japón - Un cambio radical"
Download "Giappone: mercati assicurativi all'insegna di profondi cambiamenti strutturali"
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