Life Insurance Distribution System in Japanese Market----Series 4: Deregulation Period from the mid-1980s to present---After the Plaza Accord in 1985, Japanese economy fell into a recession due to therapid appreciation of the yen. A series of financial and monetary easing policies had
been taken aiming at stimulating the growth of domestic market, namely toencourage households to consume and to spur corporates to conduct moreinvestments. As a part of those policies, the interest rates were gradually liberalized.
Meanwhile, the real estate and securities investments especially in equities became
significantly active from the mid-1980s as the progress in the deregulations offinancial and capital markets, and Japanese economy entered into a so-called
asset-inflated growth period.
To respond to these changes in the business environment, a revolutionary new
insurance product, variable insurance, in which the value of the policy is linked
with the investment performance of insurance company, was introduced into theJapanese market in October 1986 after approved by the regulatory authorities.
Moreover, the single-payment type of endowment insurance product in which theassumed interest rate tended to be set at a relatively high level became
tremendously popular. However, insurance companies are exposed to thecompetition not only from the same industry but also from other financial
institutions since then. This means that a comprehensive financial knowledge will
be preferred when conducting insurance solicitation activities.
In fact, both the industry association and the individual companies haveengaged in improving the financial knowledge of sales agents. For instance, the Life
Insurance Association of Japan (LIAJ) immediately started a qualifying examination
program relating to variable insurance solicitations when such products became
legitimated in 1986. Two years later, LIAJ also started the Financial Advisor
Certification Examination. Then in 1992, LIAJ started another two qualifying
examinations for Life Consultant (LC) and Senior Life Consultant (SLC) respectively.
About one year later, a Total Life Consultant Certification Examination (TLC) wasstarted as well.
On the other hand, insurance companies had been utilizing social media
advertising sales agent, especially the female sales agent. Most of advertisements
regarding sales agent during this period promoted an energetic, intelligent andcourteous image of female insurance sales agent. It seemed that all those efforts hadbeen paid off to some degree. During the bubble economy period, the turnover rates
1

of sales agents had been improved, and both the number of registered sales agent
and active sales agent were in an upward trend.
However, the life insurance industry was significantly damaged as the severe
economic conditions continued following the collapse of bubble economy in theearly 1990s. The number of new policiesand the total value of policies in force had
been following a downward trend from themid-1990s

tothemid-2000s.

As

countermeasures against the economicrecession, the government promoted afurther financial liberalization. Regarding
the insurance industry, as a major part ofrelaxation of regulations, the Insurance Business Act was revised in 1995 andbecame effective on April 1, 1996.
With respect to the life insurance distribution system, the main points of theAmended Insurance Business Act can be summarized as follows. Firstly, cross entry
between life insurance business and non-life insurance business throughsubsidiaries in respective business fields has been permitted. As a result, in 1996,
eleven non-life insurance companies entered into the life insurance market by
establishing a subsidiary company. It is notable that the major distribution
channels adopted by those newcomers are agency channels.
Secondly, the restrictions on the insurance policy design and the price setting
have been relaxed by shifting from the authorization system to the registration
system. This suggests that as a means of competition, the product differentiation
including policy design and/or price becomes available. Thirdly, the entry into thethird sector by the subsidiaries of life insurance companies and non-life insurancecompanies are permitted. This means the business handled by the insurancecompany will become more diversified, and therefore the sales agent withcomprehensive financial knowledge will be more desirable for the insurance
solicitation activities.
Moreover, the Amended Insurance Business Act allows insurance companies toutilize brokerage distribution system for insurance solicitations. Also, the financial
institutions such as securities companies and banks are allowed to conduct
insurance solicitations by the Amended Act. In fact, the deregulation for securities
companies was promoted in December 1998, while that for banks was implemented
in phases during the period from April 2001 to December 2007.
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Furthermore, as the progress in IT technology, the internet has become a newsales channel for all types of insurance products. In addition, two life insurancecompanies specializing in online direct sales, namely AXA Direct Life Japan and
LIFENET Insurance Company, were established in April and May 2008, respectively.
In the meantime, some notable issues which undermine the creditability ofinsurance industry occurred as the progress of the liberalization. The first issue isthe bankruptcy of life insurance companies. During the period from 1997 to 2001,
seven domestic life insurance companies including Chiyoda Life which has a long
history and used to be one of the Big Five companies in the prewar period wentbankrupt. Although the causes of those bankruptcies were various, their emergence
was an enormous shock for the interested parties especially the policyholders if
considering the fact that there had been no insurance companies going bankrupt in
the post-war period which was assured by a so-called convoy system in which thegovernment provides every possible help and support to prevent insurancecompanies from the bankruptcies.
Another issue is the frequent occurrence of improper claims payments such as
payment leakage and non-payment from 2005 on. This issue can be largely
attributed to the product diversification of insurance companies as the progress ofliberalization. In particular, products
provided by insurance companies havebecome increasingly diverse and more
complex after the Amend Act allowsinsurancecompetitive
strategic

companies

toadvantages
pricing

gain
throughandproductdifferentiation. Also, the approval ofcross entry between the life andnon-life insurance sectors, and theThe Improper Claims Payments
2001-2010 Reached 113.6 billion JPY.
Source: Asahi Shimbun, Dec 17, 2011.

during

entry

into

thethirdsector

hasundoubtedly facilitated the diversity
and complexity of insurance products

as well. Under such circumstances, the education and training of human resources
especially the sales force has become an urgent issue. Nevertheless, the insurancecompanies seemed to have lagged in responding to it.
On the other hand, the public insurance systems such as pension, health andmedical care have been confronted with a serious situation where the Japanese3economy is still in recession, and no significant improvements have been observedin the problems of declining birth rate and aging population. Under thesecircumstances, the needs for private pension, medical care and nursing careinsurance products have increased rapidly in recent years.
This suggests that the consumer needs will become more diverse in future andsubsequently more comprehensive service in insurance sales activities and claim
payments will be required. In other words, the face-to-face type of insurance sales
may still be most desirable and preferred by customers despite the fact the numberof traditional direct sales agents has continuously decreased, whereas the numberof sales employees from the individual and corporate agencies has increased
greatly.
However, the distribution channels for life insurance business have been highly
diversified, and a slight upward trend has been observed in the new acquisition
policies by the nontraditional sales channels such as online direct sales. Therefore,
as a traditional type of insurance sales, the face-to-face channels are required tocontinue the revolution aiming to meet the diversifying consumer needs and thechallenges from other emerging channels.
The End.
(YingYing Jiang, Ph.D. in Commerce of Hitotsubashi University)4