Insurance Industry 2.0

By Toshiya Noguchi

Public Interest Incorporated Foundation

Oriental Life Insurance Cultural Development CenterTokyo, Japan

「保険業界2.0」の英語版出版に寄せてまずは、英語版を発刊していただいたアジア生命保険振興センターの皆様に厚く御礼を申し上げます。
本書は、日本の保険業界全体について、過去からの経緯、現在の置かれている状況、今後の見通しの３つの視点から述べています。従来の保険に関する本は、損保の1保険リスクに関してや、生保の法人チャネル
における販売方法に関してなど、断面的な情報しか記載されていませんでした。そのため、日本の保険業界の全体像を学ぶ方法が無く、他業界の人から網羅的な情報を求める声が数多くあったため、2021年12月に日本語版を出版することになりました。私自身、過去にいくつかの新聞や雑誌等で保険に関する記事の寄稿や、連載記事を書かせていただく機会がありましたが、「保険は専門性が高く、用語も難しいため、なかなか全体像がつかめない」という声を多くいただいていました。また、自身の勤める会社に、他業界から来た社員を迎える度に、保険業界の全体像を教える書籍が存在しないために苦労していました。私自身は損害保険業界と生命保険業界で長く勤め、アクチュアリーですが当局対応、営業、商品開発、決算業務などの幅広い業務を経験するとともに、経営者として保険会社を支えてきたため、日本の保険業界の全体像をつかむことができ、これが本
書籍の執筆に大いに役立ちました。実際に、本書籍を新入社員の教育用の教材として使用してくださっている保険会社もあると聞きました。
何故、保険業界の過去を知ることが重要であるかというと、保険はその国の経済動向や社会環境を色濃く反映するものだと考えているからです。
その時々で起きてきた社会的な出来事が、今の日本の保険業界を作り上げています。したがいまして、過去を知ることは、現在の保険業界を理解する上で非常に重要な礎となります。ほんの四半世紀前までは、生保、損保共に全社同じような保険商品を、ほぼ同じ保険料で販売していました。
そのため、ある程度の売り上げを実現できれば、高い収益性が確保できる業界であったと言えます。したがって、保険会社のトップは営業出身者が大半を占めていました。しかし、ほんのわずかの期間に、日本の保険業界は自由化の荒波に揉まれて大きく変わりました。各社が毎年意欲的な保険商品を数多く発売し、時には支払率の悪化に苦しむ姿を数多く見てきています。つまり、保険会社の経営にあたって販売量のみならず収益性も欠かすことのできない指標になったと言えます。そのことから、近年では外資系

のみならず伝統的な日本社においても、アクチュアリーが保険会社のトップに就任する機会が増えました。
そして、近年は生保、損保共に大きな課題を抱えこむことになりました。
社会環境の変化として、テクノロジーの発達とコロナウイルスの感染拡大は周知のとおりですが、これらが日本の保険業界の変革を大きく後押ししています。生保は、コロナによる保険金支払いが急増するとともに、従来対面販売が中心であった募集方法の変革を迫られています。また、損保は、収益の柱であった自動車保険が、自動運転技術の発達とともに存在意義が薄れていくとともに、地球温暖化の影響を受けて火災保険の支払率が大幅に悪化するなど、経営危機に直面しています。中小の保険会社にとっては、ゲームチェンジの絶好の機会を迎えたとも言えますが、経営の舵取りに失敗すると経営破綻に繋がりかねません。
また、今後の日本の保険業界がどうなるかも述べています。ご存じの通り、日本は世界でも類を見ないスピードで少子高齢化が進むとともに、近年は経済が停滞しています。このため、お客様が必要とする保険商品の種類やマーケット規模も大きく変わっていくことになります。また、投資、システ
ム、オペレーション、商品付帯サービスやオフィス環境に至るまで、自身が予測していることをすべて述べています。保険は社会生活に不可欠の機能であると信じており、保険業界が健全な発達をして欲しいと考えているか
らこそ、自身の知見を隠すことなく書くことにしました。
「保険は国によって異なるので、日本で起きたことやこれから起きることは自分の国の保険には関係ない」と考える人もいるかもしれません。確かに、販売されている人気の保険商品は、国や地域によって全く異なります。しかし、その保険商品が持つ特徴やリスクについては国によって異なるもの
ではありません。例えば、現在は経済成長をしており、出生率が高い国においても、将来的に経済成長が止まり少子化になった際は、日本と同じ課題に直面するはずです。したがって、日本の保険業界の状況を知ること
は、学べる点が数多くあると思います。
本書を読むことで、日本の保険業界の状況を理解いただくとともに、保険という商品が持つ社会的な意味についてもご理解いただけますと幸いです。
2023年8月
野口俊哉

On preparing an English-language version of Insurance Industry 2.0
First of all, I would like to express my deepest gratitude to Oriental Life
Insurance Cultural Development Center for publishing the English version.
This book discusses the insurance industry of Japan as a whole from threeperspectives: its past history, current situation, and future outlook. Mostbooks published so far only describe one dimensional information, such as
one particular insurance risk of non-life insurance or sales methods for a
corporate channel of life insurance. For this reason, there was no way to learn
the whole picture of Japan’s insurance industry, and there were growing calls
for comprehensive information among people in the different industries. In
response to those calls, the original version of this book was published in
December 2021. I myself had some opportunities to contribute articles orserialized articles on insurance to some newspapers and magazines in thepast, and not a few people commented that the insurance is a highly specialized
subject and has a lot of technical jargons so that it is very hard to get its fullscope. At the same time, every time the company I worked for hired new
employees from the different industry, I had quite a hard time to train themwithout the proper textbooks about the insurance industry as a whole. I
myself have worked in the both non-life and life insurance industries for along time as an actuary; however, I was also in charge of the variety of tasks
including dealing with the supervisory authorities, sales, product development,
and account settlements as well as supporting an insurance company as
management. These experiences helped me capture the whole picture of thelife insurance industry of Japan and become very handy to write this book. In
fact, I’ve heard that some companies use this book as an educational material
for their newly hired employees.
So, why is it important to learn the history of the life insurance industry?
The answer is that I believe the insurance reflects the economic trend andsocial environment of the given country the most. A series of social events
happened time to time has formed today’s Japanese insurance industry.
Therefore, studying the past becomes the fundamental foundation tounderstand the current insurance industry. It was just a quarter century ago
that the both non-life and life insurance companies sold almost the same

products at almost the same premium amounts. Because of this, the insurance
industry was said to be an industry where a company was able to secure highprofitability by keeping up with a certain level of sales. This is also the reason
for the fact that the majority of company heads of insurance companies used
to be with a sales background. However, Japan’s insurance industry has
undergone a significant change by getting caught by a huge wave ofliberalization in a short period of time. I have witnessed many times thatevery year each life insurance company launches many aspiring insurance
products and at times, companies suffer from the rate of claim payment going
downhill. In other words, it can be said that not only sales volume but also
profitability has become the absolutely necessary indicator for the
management of insurance companies. Therefore, there have been increasing
opportunities opened up for actuaries to become company presidents at not
only foreign affiliated insurance companies but also traditional Japanese
insurance companies in recent years.
And now, both life and non-life insurance companies are faced with amajor challenge. As many of you may know that the advancement oftechnologies and the global pandemic of COVID-19 are among the factors of
the changes in social environment, they are also the driving force behind thetransformation of Japan’s life insurance industry. While the number of
insurance claims hikes due to COVID-19, life insurance companies are being
forced to change their sales method, which has long been dominated with
face-to-face sales. On the other hand, non-life insurance companies arefacing ddifficulties as the automobile insurance, once a primary source ofrevenues, is losing its presence due to the development of autonomous
driving technology and the fire insurance is suffering from its soaring
payment rate due to the impact of the global warming. For those small andmedium sized companies, it can be said that they get the best opportunities tobecome a game changer; however, if they take a wrong step, they could end
up with a bankruptcy.
I also discuss the future outlook of Japan’s insurance industry. As you all
know, Japan’s aging population and falling birth rate are progressing at therate the world has never seen before, whereas its economy is stagnant. As aresult, the insurance products customers need and the size of the market

would undergo a significant change going forward. In addition, I touch on
everything I can predict, including the investment, system, operation, productservice and even the office environment. Since I believe that insurance is thefunction essential to the social system and that I hope for the sounddevelopment in the insurance industry, I decided to share everything I know
with my readers, without hiding anything.
Some may think that insurance varies from country to country, region toregion, so that what has happened or would happen to Japan has nothing to
do with your country’s insurance industry. That is absolutely true that the
popularity of insurance products differs among countries or regions. Thatbeing said, the characteristics and the risks of the particular insurance productare unique to the product itself and they don’t differ by countries. Even acountry currently experiencing economic growth and maintaining a highbirthrate would face the same challenges as Japan once its economic growth
becomes stagnant and its birthrate takes a downward turn in the future.
Therefore, I think there is a lot to learn from the situation of Japan’s insurance
industry today.
I am glad if you’d understand the social implication of life insurance aswell as the situation of the insurance industry in Japan by reading this book.
August 2023
Toshiya Noguchi

Insurance Industry 2.0
Table of contents

1

Introduction�����������������������������13

2

Joining an insurance company withthe aim of becoming an actuary �����������19

3

Turning points in the insurance industry ���27
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)

Domain adjustments in 1965  �������������������� 27
Emergence of consulting sales ������������������� 29
The issue of fictitious automobile insurance policies ������ 31
Insurance deregulation and liberalization������������� 35
Collapse of insurance companies������������������ 44
Consolidation of non-life insurance companies���������� 46
The issue of the non-payment of insurance claims ������� 47
The bankruptcy of Lehman Brothers and the dissipation of
the variable annuity business�������������������� 51(9) Enforcement of the Insurance Act ����������������� 53(10) The rise of new channels����������������������� 55(11) Financial planners and insurance rankings������������ 59(12) Formulating new rules for insurance solicitation �������� 62

4

The current environment in which theinsurance industry operates ���������������65(1) The spread of COVID-19 ����������������������� 65(2) Low interest rate environment ������������������� 71(3) An aging society with a declining birthrate������������ 74(4) Rising national healthcare costs ������������������ 76(5) Technological developments and FinTech������������� 80

(6)
(7)
(8)
(9)

Legislation governing the intermediation of financial services � 82
SDGs and ESG investments ��������������������� 84
Expectations for health promotion-type insurance ������� 85
Increasing competition for sales of medical and cancer
insurance�������������������������������� 94(10) Headwinds for foreign currency-denominated annuity
insurance�������������������������������� 96(11) Changes in rules governing corporation taxation �������� 98(12) The evolution of driver assistance and automated driving
technologies ����������������������������� 101(13) Increase in natural disasters ������������������� 102(14) Threat of cyber risks ������������������������ 104(15) International capital controls ������������������� 105

5

Impact of COVID-19 ������������������� 109
(1)
(2)
(3)
(4)
(5)

Further decline in the birth rate ����������������� 109
Increase in the burden placed on medical institutions ���� 110
Economic stagnation ������������������������ 111
Continuation of the low interest rate environment ������ 112
Awareness of social distancing and the rapid transition toa net-based society ������������������������� 113(6) Utilizing new technologies��������������������� 115(7) A greater need for indemnifying products ����������� 116(8) Further decline in the number of traffic accidents������� 117

6

The future of the insurance industry ������ 119(1) Markets and insurance products ����������������� 121(2) Sales channels and solicitation management ��������� 134(3) Investments and management ������������������ 141

(4)
(5)
(6)
(7)
(8)
(9)

7

Operations ������������������������������ 143
Systems�������������������������������� 145
Supplementary services���������������������� 147
Human resources�������������������������� 148
Office environment ������������������������� 150
Other ��������������������������������� 152

In conclusion ��������������������������� 157

1 Introduction

1

Introduction

The spread of COVID-19 shows no sign of ending and the virus that firstemerged in FY2019 has dramatically changed the way of life for people all
around the world. In Japan, infected persons first appeared at the beginningof 2020 and a state of emergency was finally declared in April 2020. A
second and third wave subsequently arrived, accompanied each time by
the issuance of a declaration of a state of emergency, such that the situation
remained unsettled for an extended period of time. While vaccines, which are
believed to be a fundamental solution, are now available to many people, theappearance of one variant after another means that people will continue to be
subject to measures implemented to prevent infections.
At the time of SARS (Severe Acute Respiratory Syndrome) in 2002 and2003, the threat of the disease was brought to people’s attention by the media
but, if we are being honest, most Japanese people treated the situation likea fire on the other side of the river. It is probable that COVID-19 was thefirst time that most of us have ever experienced a pandemic up close andin person. More than a few people were likely focused on how they should
behave in order to ensure that they could avoid becoming infected and felt
compelled to change the way they lived. Many industries were likewise
forced to fundamentally rethink their operations.
The same can be said of the insurance industry. When it came to life
insurance in particular, the primary way of soliciting clients used to involvethe following: an insurance solicitor would meet with the client and patiently
explain the policy to him or her before having the policy purchased by theclient. You could visit any café anywhere and you would likely see, almost
as a matter of course, a scene playing out in which a life insurance solicitor
13

would be describing insurance products for a client. With the spread of thepandemic, however, social distancing requirements made it very difficult
to talk to clients face-to-face. Consequently, the sales of life insurancecompanies that mainly engaged in sales through face-to-face meetingsby solicitors dropped like a rock across the board. Sales at life insurancecompanies declined by more than half in some cases. Most life insurancecompanies now are furiously working to set up a system to allow them toeffectively sell life insurance products through online channels rather thanface-to-face meetings.
On the other hand, so-called direct insurance companies that sell insurance
only through mail order and online channels without the involvement of faceto-face solicitors succeeded in substantially increasing sales in the midst of
COVID-19. Ever since they first emerged in around 1996 when deregulation
allowed direct sales of non-life insurance products, direct non-life insurancecompanies have been steadily increasing sales, primarily through the online
selling of automobile insurance policies. These days, commercials for
direct non-life insurance companies have become a veritable daily stapleof the television landscape, a fact that suggests that this business model issuccessful. Inspired by the success of direct non-life insurance companies,
Internet-based life insurance companies were established around a decade
later in 2008 and garnered a lot of attention for a while from both within andoutside the life insurance industry. However, these companies suffered fromsluggish sales growth within a few years of their founding and their situation
was otherwise hardly as smooth as it was for direct non-life insurancecompanies. Moreover, the number of life insurance companies entering themarket for selling life insurance online increased as these companies, manyof which had primarily engaged in face-to-face sales, set about building
systems to allow people to apply for policies online, but the size of the market
did not grow in line with expectations, which meant that a large number oflife insurance companies continued to compete with one another for limited
pieces of the pie. Nevertheless, COVID-19 made it possible for online life
14

1 Introduction

insurance companies to successfully increase sales to a significant extent.
Some of the main reasons for this are as follows: clients do not need to meetwith solicitors and can instead apply for an insurance policy whenever theywant; clients who work from home have the flexibility to fully consider theiroptions in connection with life insurance, which is something they will end
up spending a lot of money on; and more clients are insecure about their own
lives in terms of both today and the future. In any case, direct life insurancecompanies who had been at a standstill were given a second chance torevitalize their business and succeeded in doing so.
At the same time, the insurance business is one in which it is difficult to
expand sales at an explosive pace unless a company manages to develop atruly best-selling product. Yet, several ambitious insurance companies who
sought to be game changers by taking advantage of COVID-19 emergedon the scene. This is because, by launching insurance products that were
designed to enhance coverage in the event that COVID-19 was contracted orin the event that damage was sustained as a result of a COVID-19 infection, it
became possible to accommodate the psychological concerns of clients who
were clearly afraid of becoming infected and thereby expect considerable
sales to be generated. This is quite similar to the phenomenon whereby thepercentage of the population that has taken out earthquake insurance rises in
the wake of a large earthquake. Naturally, such insurance products run therisk of giving rise to a high number of insurance claims being made at thesame time. Since the risk diversification function that is inherently a part of
insurance does not work in such a case, an outbreak of COVID-19 infectionsin Japan could cause the payment rate to deteriorate suddenly and a large
amount of losses to be amassed. For this reason, these insurance products areof the high-risk, high-return type for insurance companies. Thus, the decision
to sell this kind of insurance product requires careful judgment for which
the situation in which the company finds itself and the effectiveness of sales
should be taken into account.
It is also a fact that the entire insurance industry was strongly requested15

by society to provide support in connection with COVID-19. While helping
clients when they are in trouble should be the mission of insurance companies,
the insurance industry came under heavy fire as people seemed to feel that,
faced with an unprecedented crisis on their hands, insurance companies
refused to extend a hand of any sort despite having whipped up anxiety in theirclients and received great sums of premium proceeds as a result. There havebeen many cases in which a certain insurance company provides some sort ofspecial treatment to its clients, whereupon many other insurance companies
follow suit to do the same, in part for competitive reasons. To illustrate, manylife and non-life insurance companies acted to provide financial support to as
many of their clients as possible, such as by paying a hospitalization benefit
even for home treatments or by waiving the interest on policyholder loans
despite the fact that hospitalization is technically a requirement for accepting
medical insurance claims under normal conditions.
While COVID-19 will surely come to an eventual end, new forms ofawareness and norms of behavior cultivated among people, such as social
distancing, will not likely revert or disappear just like that. Under thesecircumstances, the insurance industry too is facing the need to revamp its
business model in line with changes in the social environment. That said,
however, I do not feel that insurance companies are about to move in acompletely different direction due to the spread of COVID-19. I believe thatthe spread of COVID-19 has caused the industry to increase the pace at which
we are moving in the direction in which we should be moving, such that weare now making rapid progress. Despite the fact that the way people makepurchases and communicate with one another has gradually shifted from theuse of people and paper to online channels over the last two decades, thebelief that the insurance industry alone might continue to adhere to outdated
conventional business practices is unnatural. For example, securities firms
primarily engaged in face-to-face sales and managed to revitalize thesecurities industry through vigorous sales activities. These days, however,Internet-based sales have come to account for a high percentage of sales to16

1 Introduction

such an extent that some experts assert that only some Internet brokeragefirms will survive in the future. While insurance and securities are not thesame business, it is inconceivable that the insurance industry would be
unaffected by the winds of change.
The environment in which the insurance industry operates is becoming
increasingly harsh, as can be seen in the intensification of competition overthe development of products, the low interest rate environment, and anincrease in natural disasters.
In other words, the insurance industry today is undergoing a period oftransformation. The contents of and way of doing business are expected tochange significantly and insurance companies that cannot transform could
end up being eliminated. This goes to the meaning of this book’s title– Insurance Industry 2.0 – and is the message I seek to convey through the
production of this work.
I would now like to explain the direction in which the insurance industry
will henceforth move and the way in which its business model will change.
I also wish to make it clear that the contents of this book are wholly myown personal views and do not purport to represent the opinions of the firm
to which I belong.

17

18

2 Joining an insurance company with the aim of becoming an actuary2J oining an insurance company with the aimof becoming an actuary

Back when I was taking entrance exams for university, I wanted to becomea doctor and tried to get into a faculty of medicine, but failed the exam andabandoned my dream. I got into the faculty of science and engineering but
my interest in pursuing a professional career had not come to an end and I
spent my student life in a state of agony. It was then that I came by sheer
chance to know of the existence of actuaries. The fact that I could take theexam for this position while working as a professional in a way that allowed
me to harness my knowledge of mathematics was appealing and I narrowed
my future career path to insurance companies for which many actuaries were
working as members of their staff.
After graduating from university, I dreamt of becoming a non-life
insurance actuary and joined Mitsui Marine & Fire Insurance Co., Ltd. In mymind, I believed that I had been hired as an actuarial candidate, but I was told
after I completed my training that my first assignment was at the Yamanashi
branch of the company. Even though I had loudly declared that I would betaking all of the subjects comprising the first actuarial examination (which
numbered six at the time) when I was still a fourth-year university student, I
failed all of them in dismal fashion. In retrospect, this was a natural outcome
in some sense. In short, I was not expected to work as an actuarial candidate
at all. While I went on to primarily provide sales support in the beginning,
I was almost immediately transferred to the sales division, where a scandal
had just occurred, and was tasked with taking charge of an agency. Since
my predecessor had caused problems and a resulting drop in sales figures,
I was blessed to be put in a position where sales figures would naturally
19rise (recover) if I single-mindedly continued to bow my head to others andapologize. Three years later, after I had then passed several of the subjects
comprising the first actuarial examination, performed well in a sales role,and succeeded in setting up numerous new agencies, I was transferred toa section at head office that was in charge of developing, promoting, andunderwriting third-sector products.
In the past, the Automobile Insurance Rating Board and Non-Life Insurance
Rating Board calculated operating premium rates for automobile insurance,
fire insurance, and personal accident insurance, which non-life insurancecompanies were obligated to use. There also existed managing companies foreach line of insurance, such that it was determined that automobile insurance
would be within the purview of Tokio Marine & Fire Insurance, fire insurance
would be within the purview of Yasuda Fire & Marine, and personal accident
insurance would be within the purview of Mitsui Marine & Fire Insurance.
Even today, a number of major insurance companies belonging to the Life
Insurance Association of Japan and General Insurance Association of Japan
take turns on a rotating basis every year to serve as head companies of theseassociations. In contrast, managing companies were not changed every year.
The section to which I belonged is in charge of dealing with the entire nonlife insurance industry as a contact point for managing companies. Since
the Insurance Business Act was also being revised and bilateral insurance
discussions between Japan and the United States were also being held at thetime, I recall how every day was fast-paced and extremely busy. To illustrate,
there were many opportunities for me to interact with the Ministry of Financein connection with the bilateral insurance discussions between Japan and theUnited States. I worked until late every day and did not take a single day off– not even weekends – for an entire year.
One late Sunday evening, I was traveling home by car when I was hit
by another car in front of Yasukuni Shrine in what would turn out to be an
20

2 Joining an insurance company with the aim of becoming an actuary

unfortunate incident. Several persons who appeared to be members of anorganized criminal organization proceeded to get out of the other vehicle
and for some reason threaten me even though I was the one who had been
hit. The head of the center in charge of the non-life insurance company thatwas providing coverage for the other vehicle was afraid of the other driverand ran away. That I had to consequently spend a long time getting my claim
settled is now a fond memory.
While I was engaging in activities as a representative of the non-life
insurance industry and carrying out a wide range of work, such as bydeveloping, promoting, and undertaking proprietary products, progress withrespect to the liberalization of insurance was suddenly made. I rememberthat the first liberalized product that was directly connected to what I wasdoing at the time was a natural disaster insurance rider attached to an income
indemnity policy, which was an option that would later be made available byother non-life insurance providers. At the time, I hated reading the newspaper
every morning. When I read an article indicating that another company had
come out with a new product, I knew that we would have to immediately
develop a rival product as part of a process that would cause me to be busy
every single day. I was a part of that section for four years. When I did thecalculations later, I realized that I must have obtained regulatory approvalexactly fifty times over that period, which worked out to a crazy high pace ofat least one approval per month on average.
I was also surprised to read in the newspaper that we were going to merge
with Sumitomo Marine & Fire, which had been a rival of ours for many years
at that time. This was because frequent talks concerning a three-way merger
involving Nippon Fire & Marine Insurance and Koa Fire & Marine Insurance
had been underway until the day before. Industry-shaking news reports werebeing released daily back then and I felt as if I were being swept up in a fastmoving current.
21

I was subsequently transferred, along with some of my work, to a sectionthat performed actuarial functions. At the same time that I was helping
develop a product commemorating the merger of Mitsui Marine & Fire
Insurance and Sumitomo Marine & Fire Insurance, I was using a statisticalsystem to analyze more than several million pieces of data a day. It was myfirst time doing a job that involved staring at a large volume of data without
speaking to anyone day after day, but I found that it was a good opportunity
for me to learn about the importance of data analysis.
When Mitsui Marine & Fire Insurance and Sumitomo Marine & Fire
Insurance merged to give rise to the Mitsui Sumitomo Insurance Company,
I was transferred to the Corporate Sales Division. Known previously as
Sumitomo Marine & Fire Insurance’s Head Office Sales Department 1
Section 1, this was a sales division that catered primarily to corporate clientsthat had been on friendly terms with Sumitomo Marine & Fire Insurance.
Since some clients had previously been a fan of Sumitomo Marine & Fire
Insurance and declared that they disliked Mitsui Marine & Fire Insurance, I
sometime found myself avoiding references to the company I used to workfor prior to the merger. Over the preceding seven years, it was the second timethat I was assigned to the sales division. While it was not easy sailing since
I needed to acquire new knowledge for a corporate clientele, I acknowledge
that I was given experience that I now see was rather useful.
While I was in charge of corporate sales, I passed the second actuarial
exam and was then able to secure a temporary assignment to a joint venturewith the Citibank Group, which had been a desire of mine. When the Citibank
Group sold its insurance business to the MetLife Group half a year later,
the company name was changed to Mitsui Sumitomo MetLife Insurance.
I was then placed in charge of the development of variable annuities andforeign currency-denominated annuities, reinsurance, actuarial settlements,
and the issuance of reports to the United States. It was the first time for22

2 Joining an insurance company with the aim of becoming an actuary

me to work in the life insurance industry as well as the first time for me touse Access and other computer programs. I had no knowledge of financial
engineering, no experience writing emails in English, and otherwise had avery difficult time navigating my way through an environment full of firsts
during the first several months there. Nevertheless, I was thereafter able toenjoy what I was doing. In particular, most of my colleagues at previous
workplaces had been proper employees of the Mitsui Sumitomo Insurance
Company and had cultivated in themselves a strong sense of loyalty to thecompany but, at this company, everyone other than employees who had been
temporarily assigned from the Mitsui Sumitomo Insurance Company were
those who had switched careers at some point, which presented me with afantastic opportunity to become exposed to completely new ways of thinking
and culture. Despite being temporarily assigned from Mitsui Sumitomo
Insurance Company, however, there were times when I felt like a doubleagent of sorts, perhaps in part due to the fact that I was submitting reports to
US-based MetLife Insurance.
I then became interested in a story that indicated that the SBI Groupwas launching Japan’s first online-only insurance company and took on thechallenge of seeking a change of jobs for the first time in my life. When I
went in for an interview, however, I found out that the new company was a
joint venture between the SBI Group and the AXA Group and was hired by
the AXA Group for assignment to its product development division. Before I
joined the company, I heard that negotiations with the authorities had mostly
wrapped up by that time. Nevertheless, I ended up having to work day andnight and on weekends as well for the first time in a while in part to engage
in these negotiations across seventy interactions with the authorities over athree-month period from the day after I joined the company. While I began byworking in the product development division, there were many opportunities
for me to support other divisions as well since these divisions were populatedwith employees who had accrued little experience in the insurance industry.
23

This was very helpful in absorbing new knowledge. Several years after webegan operations, we became a wholly-owned subsidiary of the AXA Groupand changed our company name, at which time I also came to be placedin charge of sales management, public relations, and marketing and was
blessed with plenty of opportunities to learn about a great many topics. In
the life insurance industry up until that point in time, solicitors consistingof salespeople and insurance agencies had been tasked with carrying out
their own marketing activities, such that there was no need for the insurancecompanies themselves to engage in marketing activities. When online-onlylife insurance companies began operating, however, they were required to
implement completely new initiatives to attract potential clients to theirown websites through their own marketing activities in part because online
insurance agencies had not yet grown sufficiently to perform those functions.
Thus, these companies were compelled to actively recruit experts in web
marketing from the likes of e-commerce companies and Internet-based nonlife insurance companies and thereby elevate their own marketing skills.
After working for an online-only life insurance company for around five
years, I got myself hired by Zurich Life in 2012. When I initially heard about
this company, I mistakenly believed that it was a non-life insurance company
famous for providing automobile coverage. I am embarrassed to admit that
this was the first time I had heard of Zurich Life despite having worked fora life insurance company. I intended to turn down the offer at first, but I
was intrigued by the thought of helping rebuild from the ground up a life
insurance company that had been suffering from poor performance and thus
decided to change jobs for the second time in my life. I have been placed incharge of product development, marketing, public relations, branding, CSR,
and more, but I believe that these are not functions that differ completely
for a life insurance company but are indeed functions that are very closely
related. By way of illustration, this is because the development of a productentails a process through which you first identify the societal context and24

2 Joining an insurance company with the aim of becoming an actuary

significance of the product, define the concept of the product and craft anexternal message, and then determine the specific coverage to be provided
by the product. In this sense, it can be said that a completely different productdevelopment process is used compared to major life insurance companies
that have completely different sections in charge of product development,
marketing, public relations, and other functions. This point is a competitive
advantage uniquely possessed by small life insurance companies, where
people like me who are eager to take on challenges in different areas mightfind themselves more at home.

25

26

3 Turning points in the insurance industry

3Turning points in the insurance industry

The insurance business in Japan has a long history. Credited with introducing
an insurance system for the first time to Japan is Yukichi Fukuzawa. Over 140
years has passed since the first marine insurance company was established in
1879. Over the course of the long history of the Japanese insurance industry,
events that overturned conventional norms to set up a new normal and charta different course for the insurance industry have occurred numerous times todate. I have worked in the insurance industry for no more than three decades.
It may be an insignificant length of time in the history of the insurance
industry as a whole, but various events have taken place in that time.
I will discuss the events that became turning points in the insurance
industry in recent years and that are believed to have had a huge impact
on the insurance industry today, with a focus on events that have occurred
while I have actually been working in the insurance industry. It goes without
saying that someone else likewise working in the insurance industry may
have perceived these events in a completely different way depending on
the insurance company for which he or she worked and his or her position,
among other factors.

(1) Domain adjustments in 1965
The insurance industry steadily expanded its market and fulfilled its
societal mission in line with Japan’s economic revival and rapid growth in
the postwar years. Insurance policies were classified by the Commercial
Code as follows: “Non-life insurance policies are contracts that set forthcompensation for losses subject to the occurrence of an accident and life
insurance policies are contracts that set forth the payment of a fixed amount27

subject to the status of the life or death of a person”. Thus, the question as
to whether accident insurance, sickness insurance, and income-indemnity
insurance should be categorized as life insurance or non-life insurance is
one that has been debated for a very long time by the likes of people in theinsurance industry and scholars. In 1965, the Ministry of Finance, which
served as the supervisory authority at the time, clearly proposed domain
adjustments in key areas as follows.
• Life insurance companies are not permitted to sell accident insurance ona stand-alone basis and shall sell it in combination with other products.
• In principle, life insurance companies shall sell sickness insurance;
products already being sold by non-life insurance companies shall bepermitted.
Domain adjustments applicable to life insurance and non-life insurance
were made several times thereafter. The life insurance industry and nonlife insurance industry had been undergoing segmentalization over a long
period of time, such that life insurance companies sell medical insurance
offering a fixed amount of coverage (for example, 10,000 yen per day of
hospitalization) and non-life insurance companies sell medical expense
insurance designed to compensate for out-of-pocket costs incurred by the
insured person at a medical institution (for example, the portion of costs notcovered by public health insurance plans and differential charges for hospitalrooms). Deregulation and liberalization, which began with amendments to
the Insurance Business Act that were enacted in 1996, completely lifted
the ban on the selling of so-called third-sector products, such as medical
insurance, long-term care insurance, and accident insurance by both life
insurance companies and non-life insurance companies.
Products that can be sold by life insurance companies and non-life
insurance companies were clarified as outlined in Figure 1.
28

3 Turning points in the insurance industry

Figure 1

Classifications of insurance as set forth in Article 3 of the Insurance Business Act
Can be sold by non-life insurance companies

First sector
Death insurance /Endowment insurance /Individual annuities, andothersThird sector
Medical insurance / Cancer
insurance / Long-term careinsurance, and others

Second sector
Automobile insurance /Fire insurance / Marine
insurance, and others

Can be sold by life insurance companies
Source: Produced by the author

Even in today’s insurance industry, it feels as if there is a large barrier
between life insurance and non-life insurance. There is little in the way ofan exchange of human resources between the two and discussions tend toproceed on the basis of distinctions made between the life insurance industry
and non-life insurance industry whenever a large earthquake occurs or there isa pandemic outbreak as was the case with COVID-19. It often seems as if thetwo are at each others’ throats. From the perspective of clients, insurance isinsurance; most clients do not make the effort to clearly distinguish between
life insurance and non-life insurance. In addition, some countries overseas
allow the same insurance company to sell both life insurance and non-life
insurance at the same time. Nevertheless, the historical background in thiscountry is such that the barrier between life insurance and non-life insurance
is likely to remain firmly in place in Japan. In light of this perspective, thedomain adjustments affecting third-sector products in 1965 were a symbolic
event.

(2) Emergence of consulting sales
The life insurance industry has grown significantly since the end of the29Second World War thanks to the support of a sales channel consisting ofsalespersons who work exclusively for a single insurance company andwho are known colloquially as “life insurance ladies”. In the past, the main
products sold were endowment insurance policies and whole-life insurance
policies with a term rider. A whole-life insurance policy with a term rider
provides, for example, a high amount of security equal to fifty million yen
to cover household expenses and the costs of the children’s education until
the insured reaches sixty years of age, which is the age of retirement, andthereafter whole-life insurance coverage of three million yen to offset theeventual funeral expenses of the insured. This kind of policy is primarily
sold in a packaged form that includes a number of optional coverage items,
such as an additional death rider. This is reasonable in one sense but, in manycases, the product is not precisely designed in a way that reflects the client’s
annual income, family structure, and lifestyle as well as other factors.
Against this backdrop, new life insurance companies entering the Japaneselife insurance industry in around 1980 adopted a sales style by which
detailed consulting actions were performed in accordance with the client’s
circumstances in such a way that these actions were designed to encourage
the client to take out a life insurance policy. A salesperson practicing thissales style was known by some as life planners, though this name differedfrom company to company. Life planners primarily consisted of persons whochanged jobs after working in a different industry. Success was achievedby conducting life planning simulations for individual clients to sell life
insurance policies. This style had a huge impact on Japan’s life insurance
industry. However, the way in which this style involves salespersons that sell
insurance exclusively tied to one specific life insurance company is the sameas the way insurance used to be sold by “life insurance ladies”.
Generally speaking, there are three main patterns of cases in which clientstake out life insurance policies:30

3 Turning points in the insurance industry(1) The client takes out a new insurance product that he or she had neverpurchased before;(2) The client reviews an existing insurance policy;(3) The client obtains additional coverage within an existing insurance
policy.
The sales technique by which proposals related to (2) above (“the client
reviews an existing insurance policy”) are made is believed to have been
established at this time. These days, the percentage of the population thathas life insurance coverage is very high. The sales technique by which an
existing insurance policy is reviewed based on reasonable proposals made inline with the client’s situation has become a common practice and is one of
the more effective sales techniques in use in sales settings.
Back when I was myself working in sales, I was asked many times byclients to help them revise their life insurance policies. There were a great
many clients who were quite anxious about their existing insurance policies.
If you can build a personal relationship with a client to such an extent
that they are actually willing to show you the certificate for their existing
insurance policy, then the switching of their life insurance policy can be said
to be as good as done.
Today, insurance shops and other sales agencies are required to provide
consulting services by ascertaining the needs of a client in detail. The basic
template for this approach is believed to have emerged at this time.

(3) The issue of fictitious automobile insurance policies
Anyone who has ever purchased a car and taken out a voluntary insurance
policy will likely be aware that in the auto insurance industry, a client who
owns or uses up to nine automobiles is subject to the non-fleet grading
system. In principle, you are assigned a grade of six in your first year ofownership or usage. With each passing year in which you are not involvedin any accidents, your grade goes up by one and your insurance premium
31discount rate increases accordingly. Your grade can ultimately go up to agrade of twenty. Conversely, your grade will go down the year following
the occurrence of an accident that you caused. The amount by which yourgrade will go down will vary depending on the accident, but your premiums
will rise. This system is based on the rational notion that those with a lower
rate of accidents should pay a lower premium and those with a higher rate ofaccidents should pay a higher premium.
If automobile insurance with additional coverage for vehicular damage ispurchased at the time a new car is bought, first-year premiums will generally
be very high. If you consider the fact that the purchase of a new car entails alarge outlay, the burden of paying automobile insurance premiums is heavy
for clients. The option of foregoing automobile insurance is not realistic if
you try to imagine what might happen if you were to drive your car and cause
an injury-causing accident without having taken out automobile insurance.
From the year following the year in which you take out insurance, yourgrade will rise as long as you continue to avoid accidents and the insurable
value to which coverage for vehicular damage applies (insurance amount)declines. Thus, your insurance premiums should decrease with each passing
year. Fictitious automobile insurance policies were an exploit improperly
used to reduce the financial burden of taking out a new automobile insurance
policy. In the past, there was no need for a solicitor to verify the existenceof an actual car or check the vehicle inspection certificate at the time an
automobile insurance policy was purchased. Thus, if you were to input
vehicular information that sounded right in an application form and took out
insurance with the lowest level of coverage in terms of amount (such as 1
million yen to cover property damage liability), the annual premium amountfor the automobile insurance policy would be exceedingly low at several
hundred yen. Since no actual automobile exists, it goes without saying thatno accident will ever occur. If you wait several years for your automobile
insurance grade to increase before purchasing an actual automobile and thenprocess a vehicle replacement transfer through your automobile insurance32

3 Turning points in the insurance industry

policy, your automobile insurance premiums at the time you purchase a newvehicle will be very low since a high discount rate will apply from the outset.
This technique was in widespread use in the non-life insurance industry. I
myself have been urged to take out automobile insurance by way of thistechnique in the past. Some people had even taken out multiple fictitious
policies. Figure 2 outlines this technique in visual form.
Figure 2

Fictitious automobile insurance policy scheme

Grade 6

Grade 7

Grade 8Grade 9Grade 10Fictitious
policyFictitious
policyFictitious
policyFictitious
policyFictitious
policyExample: 1
million yen to
cover property
damage liability

Example: 1
million yen to
cover property
damage liability

Example: 1
million yen to
cover property
damage liability

Example: 1
million yen to
cover property
damage liability

Example: 1
million yen to
cover property
damage liability

Vehicle replacement transfer isprocessed when a vehicle ispurchased during the period.

Can take out automobile insurance
for a reduced premium amount fromthe time a new vehicle is purchased.
Source: Produced by the author

Policy with anappropriate
amount of
insurance

However, trainees from a certain non-life insurance company distributed
a pamphlet offering fictitious policies to the homes of the senior members of
a supervisory authority in 1994, which caused this matter to be revealed andbecome highly controversial in the non-life insurance industry. Thereafter,
non-life insurance companies implemented substantial remedial measures,such as by having actual vehicles checked through a look at vehicle inspection
certificates for all automobile insurance policies. At the time, I was in chargeof many sales agencies as a sales employee at a non-life insurance company.
It was a highly stressful time since more than 150 automobile insurance
policies that were suspected of being fictitious policies were found at theagencies under my charge. I remember visiting the homes of clients together
with sales agency people every day until late in the evening and humbly
asking these clients to allow us to verify the existence of an actual vehicle.
33

We had to cancel automobile insurance policies that were determined to be
fictitious and ask clients to pay additional premium amounts to rectify thesituation in what was a painstaking process.
In the non-life insurance industry, this issue induced a thorough review
of all policies in force, both automobile insurance policies and otherwise.
Many non-life insurance policies were checked and corrected. For example,
structural classifications in fire insurance policies were checked. In otherwords, the issue of fictitious automobile insurance policies was not simply
a single event but an event that significantly promoted the fostering of acompliance mindset in the non-life insurance industry. The functions ofcompliance departments at non-life insurance companies were thereafterstrengthened and an internal system for detecting issues and correcting or
clearing out policies on a self-help basis was established.
Before this issue arose, there was a project to construct a building for
the university I was in charge of and competitive quotes for fire insurance
were issued in connection with this project. As it was certain that theinsurance policy would be expensive, I eagerly sought to verify the structuralclassification and submitted a quotation accordingly, but we ended up losing
out to another non-life insurance company in terms of premiums. When I
later carefully looked into this result, I found out that the winning non-life
insurance company had proposed a lower premium than us due to a structuralclassification that was improper. While I felt hopelessly frustrated at the time,
I am quite sure that the insurance policy for that building too has since beencorrected.
In today’s insurance industry, compliance with the law is a fundamental
principle when engaging in conduct. Every insurance company is focused on
cultivating a compliance mindset, which is something that I believe can betraced back in part to what happened when the issue of fictitious policies forautomobiles came to the fore.

34

3 Turning points in the insurance industry(4) Insurance deregulation and liberalization
Until the 1980s, almost all life insurance products and non-life insurance
products offered the same coverage (compensation) and charged the same
premiums irrespective of the insurance company that sold them.
Moreover, in the life insurance industry, only effectively small to mediumsized domestic life insurance companies and foreign-affiliated life insurancecompanies were allowed to sell medical insurance, cancer insurance, andother examples of third-sector insurance products, such that major life
insurance companies could only sell such coverage in the form of riders
attached to death insurance policies. For this reason, certain foreign-affiliatedlife insurance companies came to corner the market for stand-alone medical
insurance and cancer insurance policies.
Incidentally, in the non-life insurance industry, insurance policy clauses
and operating premium rates were formulated by the Automobile Insurance
Rating Board for automobile insurance and by the Non-Life Insurance Rating
Board for fire insurance and accident insurance (hereinafter referred to as“rating boards”) and non-life insurance companies were obligated to use
these insurance policy clauses and operating premium rates as formulated
accordingly. In other words, it was a world that was very far removed fromcompetition in terms of product development. As there was no relative meritin terms of what was offered by products, most insurance policies for which
policyholders consisted of corporations were underwritten by insurancecompanies based on relationship factors, such as whether the policyholder
and the underwriting company belonged to the same corporate group, owned
shares in one another, or exchanged personnel with one another from time
to time. Of course, these relationship factors remain important to this day as
factors to be considered by a company when deciding on an underwriting
company.
From around 1990, however, calls for deregulation and liberalization
grew stronger, and many meetings of experts were held. Consequently, the35

Insurance Business Act was completely overhauled in April 1996, thereby
triggering the deregulation and liberalization of insurance over the next five
years. The five-year period from 1996 to 2001 was a period of historically
unprecedented change in the insurance industry and those working in theinsurance industry experienced a range of emotions at the waves of news
stories that were being reported seemingly on a daily basis. I was working
in the non-life insurance industry at the time and was actively representing
the industry as a member of a managing underwriter of third-sector products.
We were engaged in a bruising competition with rival companies for thedevelopment of products amid a wave of deregulation that had recently been
kickstarted. Since we were also participating in merger talks with other nonlife insurance companies and carrying out related work, I was continuouslycompelled to work without sleep or food during this period. Even now, I am
overwhelmed by a flood of emotions whenever I look back on the turbulent
flow of events that occurred at the time.
I would like to explain the developments that occurred over this five-year
period by exploring three different aspects associated with it: amendments
made to the Insurance Business Act, insurance talks between Japan and theUnited States, and the Japanese version of the Financial Big Bang.
[Amendments made to the Insurance Business Act]First, the Insurance Business Act was comprehensively amended in April
1996, a process that resulted in a raft of new provisions as shown in Figure
3. These new provisions have affected the insurance industry today in manydifferent ways.
In the wake of these amendments made to the Insurance Business Act,
many life and non-life insurance companies set up subsidiary insurancecompanies in unison. Life insurance companies set up non-life insurance
subsidiaries and non-life insurance companies set up life insurance
subsidiaries in anticipation of future liberalization. However, whereas manyof the life insurance subsidiaries set up by non-life insurance companies
36

3 Turning points in the insurance industry

remain in existence, most of the non-life insurance subsidiaries set up by life
insurance companies are no longer around. There are many possible theories
to account for this, but the ones that I believe are valid are as follows.
Figure 3

Main matters set forth in amendments made to
the Insurance Business Act in 1996(1) Lifting of the ban on mutual participation in the fields of life
insurance and non-life insurance by providers through the use of
subsidiary companies(2) Introduction of a system of notification applicable to insurance
products and premium rates(3) Review of the Non-Life Insurance Rating Board(4) Establishment of an insurance broker system(5) Introduction of the concept of a solvency margin ratio(6) Establishment of a policyholder protection fund system(7) Development of disclosure rule
Source: Produced by the author• Compared to life insurance, which generally corresponds to a longer
insurance term and higher unit premium cost, non-life insurance
corresponds to a term of insurance of one year and generally lower
profitability per policy and can be described as a business that generates
thinner margins than life insurance does. Thus, it was hard to see any
advantages to operating non-insurance subsidiaries for parent companies
consisting of life insurance companies.
• Vast numbers of insurance products are sold by non-life insurancecompanies and there is thus a need to build a dedicated system forthe payment of insurance money for these insurance products. Whenit comes to automobile insurance and fire insurance in particular, you
cannot just deal with such insurance products on a centralized basis outof a head office somewhere like you might see with a life insurancecompany. Accordingly, substantial time and costs were required to builda system for the payment of insurance money, such as in terms of theneed to hire specialists.
37

Until deregulation and liberalization occurred, most insurance products
were the same in terms of their contents from one company to the next.
Products were structured in such a way that you could expect to secure acertain amount of profit as long as insurance products could be sold. For
this reason, the balance of power in life and non-life insurance companies isusually at a peak in the sales department. As competition for the developmentof products became more intense following deregulation and liberalization,
however, companies came to use their own policy conditions and premiums.
This caused profitability to undergo a relative decline. Since it became
necessary to analyze the profit structure given that the profit margin in somecases even dipped into negative territory depending on the target group forsales, the qualities required of the managers of insurance companies came tobe completely different.
Incidentally, back when I was in charge of developing third-sector products
at a non-life insurance company in the 1990s, I was concerned that salesof medical expense insurance that we had made available to clients were
not increasing. At the same time, sales of medical insurance offering a fixedamount of coverage as made available by foreign-affiliated life insurancecompanies in the life insurance industry were steadily increasing. It was thenthat I wondered whether the reason for the inability of non-life insurancecompanies to sell medical expense insurance was the fact that such insurancecompensated for any actual losses that were sustained. In other words,
I felt that perhaps the ease with which clients could imagine that medical
insurance offering a fixed amount of coverage – for example, 10,000 yen
per day of hospitalization – would entitle them – under this example – toa payout of 100,000 yen for ten days of hospitalization ended up having amajor impact on the volume of sales of this type of product. On the other
hand, an acquaintance of mine who was working for a life insurance company
indicated that he was envious of non-life insurance companies that could sell
medical expense insurance designed to compensate for any actual losses that38

3 Turning points in the insurance industry

were sustained. I am pretty sure that both sides simply perceived the grass tobe greener on the other side of the fence.
Figure 4 outlines the differences between medical insurance and medical
expense insurance as sold by life and non-life insurance companies prior tothese amendments made to the Insurance Business Act.
Figure 4

Differences between medical insurance and medical expense insurance

Medical insurance

Fixed-amountcoverage

Medical expense
insurance

Compensation
for any actual
lossessustained

Source: Produced by the author• X yen per day of hospitalization•X yen in surgical benefits•X yen per post-hospitalization
day of outpatient treatment
involving travel to and fromthe hospita•C ompensates for out-of-pocket
expenses (30%) in the event of
hospitalization•C ompensates for any
difference in room charges tobe paid in the event of
hospitalizatio

What I noticed when I later came to work for a life insurance company isthat the selling of automobile insurance and fire insurance differs completelyfrom the selling of medical insurance. While many people take out non-life
insurance policies out of necessity in the same way that they pay taxes when
they purchase a car or a home, marketing activities for non-life insurance
products that are closely linked to the individual market are hardly undertaken.
When it comes to life insurance, on the other hand, sales representatives andother types of solicitors form close relationships with individual clients byengaging in detailed sales activities that are routinely rooted in the local
community. Moreover, since medical insurance itself is closer in nature to
death insurance than to automobile insurance or fire insurance, it is possible
to underscore the needs that are associated with the risks of injury and illness
when a solicitor sells death insurance. Thus, it is likely that someone who
normally sells death insurance will find it easier to sell medical insurance.

39

[Insurance talks between Japan and the United States]
In December 1996, at a time when amendments made to the Insurance
Business Act were still reverberating throughout the industry, insurance talks
between Japan and the United States resulted in a done deal. The contents of
the agreement that was reached were incorporated into the Financial System
Reform Act and led to further amendments made to the Act on Non-Life
Insurance Rating Organizations and the Insurance Business Act. This led todecisions that were made to expand the range of insurance products subject
to the notification system, get rid of the obligation to use premium rates set
forth by rating boards for such products as automobile insurance and fire
insurance, abolish calculations of additional premium rates, and allow for
mutual participation in the market for third sector insurance products by lifeand non-life insurance companies themselves.
It was determined that rating boards would continue to calculate reference
loss cost rates for automobile insurance, fire insurance, accident insurance,and long-term care expense insurance and that member non-life insurancecompanies could refer to these rates to impose their own loading premium
rates and calculate operating premium rates. For mandatory vehicle liability
insurance and earthquake insurance, it was determined that standard premium
rates (operating premium rates) would continue to be calculated given thatthey are of an exceedingly high public nature.
Consequently, risk-segmented automobile insurance was approved by theauthorities in 1997, thereby marking the start of full-scale competition interms of product development in the non-life insurance industry.
However, it came to be that measures for drastic easing with respect tothe lifting of the ban on the selling of third-sector products, which had been
cornered almost entirely by foreign-affiliated insurance companies, would be
implemented. As a result, the ban on the selling of third-sector products waslifted in January 2001 for major life insurance companies and life insurancecompanies that operated as subsidiaries of non-life insurance companies.
Major non-life insurance companies had to wait until July of the same year40

3 Turning points in the insurance industry

to directly enter the market themselves.
I was working for a Japanese non-life insurance company then and regretthat I felt that this transitional measure was something akin to an unequal
treaty. I had a chance years later to talk to a friend who had supported theAmerican side at an American-affiliated non-life insurance company and hetold me that he too had felt ambivalent about the whole thing.
Insurance that pays out benefits when your situation changes or you
are hospitalized due to an illness or injury – examples of which consist of
medical insurance and cancer insurance – has long been known as thirdsector insurance. I remember that it was from around that time though that
insurance that is related to the life or death of a person and that is specificto the life insurance business came to be called first-sector insurance andinsurance that is related to compensation for accidental damage or loss andthat is specific to the non-life insurance business came to be called secondsector insurance.
The non-life insurance company for which I worked back then was athird-sector managing underwriter but I was working in a relatively relaxedatmosphere. This is because all non-life insurance companies engaged insales activities using the same policy conditions and premiums drafted by
the ratings boards, such that all of these companies were more or less on thesame footing. Despite having been protected by being able to operate as partof an escorted convoy in this way, we felt as if we had been suddenly flungout into the middle of the vast ocean due to deregulation and liberalization.
The main sales channel for non-life insurance companies had been the
independent agencies that handled products underwritten by multiple
insurance companies. From that time on, however, each insurance company
worked to develop and release new products seemingly on a daily basis,
which then forced us to spend our days dealing with all of these new products.
Since understanding of product development matters within the company
was insufficient at times, however, there were many times when I was forced
to figure things out on my own. Thus, I was compelled to endlessly respond41

to all sorts of inquiries from branch sales offices across the country during
the day and engage in product development work on weekends. It was hardly
unusual for me to work over 200 hours of overtime each month back then.
These numbers would be simply unthinkable now, but they are certainly areminder of the fierceness with which product development was undertakenwith zeal in the non-life insurance industry at the time.
In the corporate sector, competition among non-life insurance companies
intensified overnight when a shift to a notification system, including withrespect to policy clauses, occurred in 1999. To illustrate, in the 2000s, I
lost a fire insurance contract with a large company to a rival company that
proposed fire insurance with unbelievably low premium rates that were about
a tenth of the rates we had set. Ungrounded premium discounts, however,were subsequently no longer permitted in the non-life insurance industry andmany non-life insurance policies underwent a correction of contents.
When it came to life insurance companies on the other hand, nocompetition in terms of product development emerged at once in part since
the primary sales channel in use by major life insurance companies was thesalespersons who were exclusively tied to a single company. Nevertheless,
new life insurance subsidiaries set up by non-life insurance companies began
to release attractive insurance products. Until that time, three kinds of basic
rates were used to calculate insurance premiums: the expected mortality rate
(expected risk incidence rate), the expected interest rate, and the expectedbusiness expense rate. However, life insurance products with lower premium
levels were developed by introducing an expected surrender rate that helped
to keep the surrender value at the time of cancellation in check. These days,
most third-sector products like medical insurance and cancer insurance
provide no surrender value and charge low premiums. We can trace their
beginnings to that time in the history of our industry.

42

3 Turning points in the insurance industry[Japanese version of the Financial Big Bang]
The Japanese-version of the Financial Big Bang constituted a large-scale
package of reforms affecting the financial system as proposed by the thenCabinet of 1996. It was rolled out between FY1996 and FY2001 with the aimof making Japan’s financial market an international financial market on parwith those of New York and London. Players belonging to the three pillars of
the financial industry – banking, securities, and insurance – were allowed toenter each other’s markets. The ban on financial holding companies was also
lifted through amendments made to the Antimonopoly Act.
In 2001, the selling of insurance products on an over-the-counter basis atbanks also came to be allowed. However, it was decided that the scope of
insurance products eligible for selling on an over-the-counter basis would
be gradually expanded in stages over time in part due to strong oppositionby the insurance industry, which argued that banks are highly influential insociety and that the potential for adverse effects caused to clients was high.
In addition, while securities firms were allowed to sell all insurance products
beginning in December 1998, banks had to wait until December 2007 asshown in Figure 5.
Figure 5

Insurance products for which the ban on selling by banks was lifted
Dec-07
Dec-05
Oct-02
Apr-01• Mortgage-related credit life
insurance• Mortgage-related
long-term fire insurance,and more• Annuity insurance
for individuals• Savings-type
accident insurancewith annuity
payments, andmore• Lump-sum whole-life
insurance• Lump-sum
endowment insurance• Non-life insurance forindividuals other thanautomobile insurance• Savings-type accident
insurance, and more

• All insurance
products

Source: Produced by the author

Even after the ban on selling insurance products was fully lifted, various
43

measures to prevent adverse effects as introduced by banks to sell insurance
have needed to be addressed on an ongoing basis. In response, several life
insurance companies specializing in over-the-counter sales at banks were
established in the 2000s. The first major products to be introduced by thesecompanies were variable annuities, the best-selling ones of which were thosefor which the principal was guaranteed. Many life insurance companies
specializing in over-the-counter sales at banks developed insurance products
for different banks and sold them under different brand labels. At the time,
I was also involved in developing products for a life insurance company
specializing in over-the-counter sales at banks. I became acutely aware of theinfluence of banks when I observed that the average single-premium amountper policy was very high at over several million yen and that major banks
earned several hundred billion yen in premium income each year.
It is hardly an exaggeration to assert that these examples of insurance
deregulation and liberalization were the biggest events to ever occur inJapan’s insurance industry. The insurance industry was transformed into acompletely different animal after the Big Bang. It is believed that deregulationand liberalization laid the groundwork for today’s insurance industry.

(5) Collapse of insurance companies
Between 1997 and 2008 in the years after Japan’s bubble economy burst,
eight life insurance companies and two non-life insurance companies – asshown in Figure 6 – went bankrupt and caused a huge public outcry.
When a life insurance company went bankrupt in 1997, no relief insurancecompany emerged for quite some time. This revealed problems with the
Policyholders Protection Fund that had been established when the Insurance
Business Act was amended in 1996. In response, the Life Insurance
Policyholders Protection Corporation and Non-Life Policyholders Protection
Corporation were newly set up in 1998 and insurance companies licensed tooperate in Japan came to be obligated to join these corporations. In addition,44

3 Turning points in the insurance industry

the policyholders protection corporation itself will now formulate rules fortaking over policies if an insurance company were to go bankrupt and norelief insurance company steps forward to fill the void.
Figure 6

Insurance companies that collapsed between 1997 and 2008
FY

Company names that collapsed

1997

April:

Nissan Mutual Life Insurance Company

1999

June:

Toho Mutual Life Insurance Company

May:

Dai-ichi Mutual Fire & Marine Insurance
Company, Daihyaku Mutual Life
Insurance Company
Taisho Life Insurance Company
Chiyoda Mutual Life Insurance Company,
Kyoei Life Insurance Company

2000

August:October:

2001

March:
Tokyo Mutual Life Insurance Company
November: Taisei Fire & Marine Insurance Company

2008

October:

Daiwa Life Insurance Company

Source: Produced by the author

Incidentally, while there are several reasons why many insurancecompanies went bankrupt back then, we can say that the biggest reason isthat many companies came to suffer from negative spreads since, despite thefact that many insurance products with high expected rates of interest had
been sold, a state of low interest rates persisted in the wake of the burstingof the bubble economy. Indeed, the media were having a field day at the timewith an article that claimed that most life insurance companies would notsurvive if the Nikkei Average dipped below 8000 yen. This problem remains
a thorn in the side of many life insurance companies today, such that life
insurance companies that are underwriting many policies for which highexpected rates of interest were set in the past are still mired in the misery thatnegative spreads engender.
The primary reason for the existence of insurance companies is to takeon the many uncertain risks potentially besetting clients, equalize them, andconverge them into a fixed amount known as premiums. It is worth noting,however, that I have never heard of an insurance company that went underbecause it sustained large mortality or peril losses caused by a mispricing
45

of the incidence of certain risks covered by its insurance products. Instead,insurance companies mostly fail when investment risks materialize.
All of this served as a lesson that insurance companies and especially life
insurance companies took to heart as they changed their approach to setting
expected interest rates for their insurance products to a far more carefully
considered one. The insurance industry today is experiencing a trend towards
thinner profit margins thanks to intensified competition in terms of productdevelopment. Companies will continue to be required to set expected interest
rates in a conservative manner in line with the introduction of capital controls
in 2025, which will be examined in greater detail in a later chapter.

(6) Consolidation of non-life insurance companies
With the arrival of the 2000s, many non-life insurance companies went
through a process of consolidation and reorganization over and over again inorder to accommodate the restructuring of financial groups and the deregulationand liberalization that they would face in the future. Consequently, non-life
insurance companies have decreased considerably in number and, with the
exception of non-life insurance companies specializing in online automobile
insurance and other niche fields, have been consolidated into three meganon-life insurance companies. This is in sharp contrast to the life insurance
industry where the number of insurance companies continues to rise.
Possible reasons to explain why non-life insurance companies haverepeatedly undergone a process of consolidation and reorganization but life
insurance companies have rarely done so are set forth below:• Non-life insurance is a narrower-margin, higher turnover business thanlife insurance is; consolidation and reorganization is vital for competition
as it is highly effective in lowering business costs;•Claims departments at non-life insurance companies employ highnumbers of employees and have a high degree of specialization, such46

3 Turning points in the insurance industry

that non-life insurance companies are more likely to benefit fromconsolidation and reorganization;•Many major life insurance companies are mutual companies rather
than joint stock companies, such that mergers are difficult given theircorporate structure;• The insurance term under a non-life insurance policy is, in principle, one
year; in contrast, the insurance term under many life insurance policies isa longer period of time, such that the integration of systems for policies
in force is difficult.
The life insurance business and non-life insurance business, by theirnature, differ in terms of the risks they hold and the terms of the policies they
underwrite, which makes it impossible to simply compare different financial
figures. However, when you consider that non-life insurance companies haveundergone a process of consolidation and reorganization over and over again
in order to response a deregulation and liberalization, it is conceivable thatlife insurance companies that are presently engaged in fierce competition in
the area of product development are highly likely eventually to also undergo
consolidation and reorganization themselves.

(7) The issue of the non-payment of insurance claims
A client trusts his or her insurance company and pays premiums accordingly
to prepare for contingencies that may arise in the future. At the same time,the insurance company shall, in response to a claim made by a client thathas previously taken out an insurance policy, pay out insurance money afterinvestigating the claim and determining that there are no bars to payment.
While this is what happens in general, the non-payment of insurance claims
is an issue that occurred between 2005 and 2007. During this period, manycases of the non-payment of insurance claims that should have been accepted47

arose in an event that affected the very core of the insurance industry.
The issue of the non-payment of insurance claims became a societal issue
rather than just a topic of relevance within the insurance industry, as a resultof which trust in the insurance industry eroded significantly. In addition,
many insurance companies were issued business improvement orders andbusiness suspension orders. The authorities subsequently continued to follow
up on these cases until 2009.
This issue actually corresponds to a variety of patterns and is generally
referred to collectively as the issue of the non-payment of insurance claims.
This issue is broadly categorized into different patterns as follows.
(1) The insurance company does not pay insurance money on the grounds
of invalidity due to fraud even though the client was not responsible
for the fraud, as might be the case if the client was advised by thesolicitor to refrain from writing correct information regarding theclient’s health condition during the disclosure step carried out whenpurchasing insurance.
(2) The insurance company does not pay insurance money on the grounds
of nondisclosure even though the insured event in question is notcausally related to any notification matter that the client failed todisclose.
(3) The insurance company does not realize that insurance money is to be
paid under not just the main policy but also an attached rider or fails
to pay insurance money and late-payment interest amounts due to asimple clerical error.
(4) Insurance money is not paid due to a failure to make a claim, which inturn was due to the inadequacy with which information was provided
to the client.
48

3 Turning points in the insurance industry(5) The insurance company fails to apply discounts that are available for afire insurance or other such policy with the effect that this means thatthe client has been paying inflated premium amounts.
The patterns listed above consist of malicious and non-malicious
scenarios. However, this affair became such a social issue that it caused
people to examine even cases that were not seen as corresponding directly tothe issue of the non-payment of claims, such as those that came under pattern(5). Regardless, it can be said that this issue made everyone aware that focus
needs to be directed at the position of clients as the vulnerable party in thecontext of asymmetry in the amount of information between clients andinsurance companies. If we are being honest, insurance companies had been
operating in accordance the industry’s own internal logic until then, such that
there seemed to be a sense that the non-payment of insurance money was
unavoidable in the event that a claim was not made by a client. This issue wasbrought to light and served as the trigger to getting the insurance industry tothink about everything from the point of view of the client.
While there were many factors that could explain why this issue arose,
one big one was the liberalization of insurance that led to the launching of ahuge variety of insurance products. At the end of the 1990s when insurance
began to be liberalized, I was working every day on developing third-sector
products. I still remember with clarity what I was told by someone from theclaims department when I was developing a certain product: I get why wehave to launch the same products as those that rival companies have alreadylaunched in order to stay competitive, but it’d be nice if you guys could also
consider what it means for us to actually pay out insurance money.
I will admit that we were so focused on developing ground-breaking new
products and following the lead of other companies when it came to productsthat we rarely considered whether we could process claims and pay insurancemoney smoothly in the event that clients actually encountered problematic
situations. I was ashamed that it took me so long to realize that, when it49

comes to insurance products, clients see getting paid insurance money as
the main event. At the time, other companies were in a similar situation andI feared that this would ultimately develop into a serious problem at somepoint in the insurance industry. This fear would come true several years later.
The emergence of the issue of the non-payment of claims caused alllife insurance companies and non-life insurance companies to undertake
extensive work to check their policies in force. Since then, they have also
been required to encourage their clients to make claims and regularly carryout checks for the occurrence of insured events.
Since there was extensive media coverage of the issue of the non-paymentof claims, the general public’s perception of the insurance industry, which
was never particularly positive to begin with, was negatively affected andremains unfavorable to this day. There are still many prominent figures andcelebrities who make the news for their critical stance on insurance companies
and products. At the same time, you almost never come across an article
published in praise of insurance. A reporter with whom I am acquainted letme know that such articles are not well received by readers. When this issue
first arose, I still remember how I was watching a morning news program in a
half-awake state and seeing a famous newscaster railing against the industry
with utter indignation: Insurance companies occupy large buildings in frontof train stations. I have always found that to be strange! It’s not surprising to
me to find out that insurance companies have been engaged in conduct thatis wrong.
I believe that these sorts of negative rumors concerning insurancecompanies have been cultivating mistrust in insurance companies with theresult that the growth of insurance shops, which have become a huge market,
was supported. These days, many insurance companies are well aware of
the need to ensure that the issue of the non-payment of claims never rears its
ugly head again and have been working hard to eradicate it from their midst.
As an aside, there have been novels and television dramas in which an
insurance company is depicted as actively looking for reasons not to pay
503 Turning points in the insurance industry

money since they would rather avoid paying clients as much as possible. In
my view, however, such depictions are rather simplistic. Having worked formany years for insurance companies, I can tell you that these companies truly
do want to help clients by paying them as much as possible if they can do so.
However, actions forcing insurance companies to pay insurance money evenin cases where an insured event is one in which insurance money originallywould not have been payable are unacceptable as they are actions that distort
the fairness of insurance and threaten the very continued existence of theinsurance system.

(8) The bankruptcy of Lehman Brothers and the dissipation of thevariable annuity business
As mentioned earlier, the ban on the selling of insurance products onan over-the-counter basis at banks was lifted in the early 2000s and manysavings-type insurance products came to be sold on an over-the-counterbasis at banks and by securities firms. Insurance products that first played acentral role soon after this ban was lifted were variable annuities for which
premiums were paid in a lump sum. These products were actively marketed
for the purpose of subjecting the retirement savings of those who wereapproaching retirement age and the investment funds of the wealthy to risk
diversification. With interest rates in the post-bubble era remaining low, theappeal of yen-denominated individual annuities being poor, and the stock
market growing steadily, the market for variable annuities rapidly expanded.
The annual premium income of a single life insurance company sometimes
exceeded one trillion yen. Thus, the number of life insurance companies thatwere players in this market gradually increased.
The first-year commission for a variable annuity received if a single
policy was sold was five percent or higher at the time. In other words, if
you sold a single ten-million-yen policy, you could be assured of receiving
a commission of at least 500,000 yen. For this reason, banks that were
suffering from declining interest income were actively marketing variable51

annuities. On the other hand, income for a life insurance company wasderived from insurance-related costs collected in small amounts daily fromthe balance of the amount charged to a client’s special account. Since theburden of solicitation commission and new policy costs was very high at
the time a policy was taken out, sales required substantial capital outlays.
Therefore, many life insurance companies took measures to reduce theseburdens at the time a policy was taken out by concluding special reinsurance
contracts. However, if the special account that manages the assets of clientswere to continue growing, the business model should be a win-win one inwhich all three parties – the client, the bank as the soliciting agency, and thelife insurance company – come out ahead. Yet, the bankruptcy of Lehman
Brothers caused the stock market to fall sharply, which in turn caused theboom in sales of variable annuities to come to a shrieking halt.
Among variable annuities, what was especially popular was the guaranteedannuity fund type of variable annuity. However, a life insurance company
that did not obtain reinsurance needed to build up capital for future annuity
payments while a life insurance company that did obtain reinsurance was
faced with a reversal situation in which reinsurance premiums would soar
well above insurance-related costs and force the company to make difficult
business decisions in terms of whether or not it should continue sellingvariable individual annuities. This is because, while an insurance company
can take on a wide range of risks associated with a large number of accidental
injuries and accidents spread across the entire country to diversify risks, risks
are almost always aligned in the same direction when it comes to variableannuities and thus cannot be diversified and because the bankruptcy ofLehman Brothers caused all such risks to materialize overnight.
After the bankruptcy of Lehman Brothers, foreign currency-denominatedannuities came to be a typical savings-type insurance product sold by life
insurance companies and actively marketed on an over-the-counter basis
through banks as an alternative to variable annuities.
While foreign currency-denominated annuities have been actively52

3 Turning points in the insurance industry

marketed in recent years, the complexity of these products, the high numbersof complaints received in regard to these products, and the more recent
decline in interest rates in the United States and Australia have prompted
many life insurance companies to market variable annuities with level
premium payments more actively in recent times. Savings-type products soldby life insurance companies will likely continue to evolve in accordance withthe external environment.

(9) Enforcement of the Insurance Act
There are many statutes and guidelines that insurance companies mustcomply with, the primary example of which has traditionally consisted of
the Insurance Business Act. At the same time, some provisions concerning
the protection of policyholders was originally set forth not in the Insurance
Business Act but in the Commercial Code. In April 2010, however, a new law
known as the Insurance Act came into force and those provisions mentioned
as being set forth in the Commercial Code were transferred to the Insurance
Act. Moreover, insurance companies were required to substantially overhaul
basic documents, including their business method statements, policy
conditions, and premium calculation method statements, as well as numerous
internal practical operations in line with the contents of the Insurance Act.
The main rules that came to be set forth in the Insurance Act are as follows:(1) One-sided mandatory provisions invalidating certain provisions ofpolicy conditions that are more disadvantageous to policyholders thanlegal provisions were introduced.
(2) While policyholders used to be obligated to make voluntary declarations,the disclosure process was changed to one involving an obligation to
only respond to questions posed by the insurance company.
(3) The period for the provision of insurance benefits was clarified, such53

that an insurance company shall be obligated to pay interest for a delay
in paying benefits if a reasonable period for conducting an investigationnecessary for making a proper payment of claims has elapsed.
(4) A new right to interject was established to allow the insurance
beneficiary to offer to continue the insurance policy under certain
conditions in response to a cancelation made by a non-policyholder
with the right to cancel the policy, such as a pledgee, execution creditor,
or trustee in bankruptcy.
(5) New provisions to allow the insurance company to cancel a policy inthe event that the policyholder intentionally causes an insured eventfor the purpose of fraudulently obtaining insurance money or a serious
reason otherwise applies were set forth.
(6) The established principle of the inseparability of premiums under theCommercial Code was abolished and a provision to refund, if there
is a period corresponding to which paid premiums are unexpired, an
equivalent amount of premiums in the event that a policy is extinguishedin whole or in part due to a cancelation or death or in the event thatpremiums are waived was newly set forth.
When the Insurance Act came into force, all insurance companies spentconsiderable time carefully considering whether they could accommodate
the practical implications of the statute. It was thus found that they wererequired to implement more advanced internal management systems andstricter operations than before. In its enforcement, the statute represented an
exceedingly burdensome one for insurance companies.
The sequence of events from the emergence of the issue of the nonpaymentof claims to the enforcement of the Insurance Act steered the entire insurance
industry fully along a path of commitment towards the protection of54

3 Turning points in the insurance industry

policyholders in a state of affairs that has remained in play to this day.

(10) The rise of new channels
Major sales channels in the non-life insurance industry have traditional
consisted of institutional agencies, which operate as in-house agencies withincorporate groups, and professional agencies specializing in insurance.
At the same time, a major sales channel in the life insurance industry
was salespersons who work exclusively for a single insurance company,
who are known colloquially as “life insurance ladies”. Those who lost theirhusbands in the Second World War became leading members of the sales
force in the industry and helped to expand the market for life insurance inline with the rapid growth of Japan in the postwar years. At its height, thelife insurance industry as a whole employed around 400,000 salespersons. It
is believed that there were still 240,000 salespersons as of the end of March
2021. Nobody can doubt that these salespersons helped lay the foundation
for the Japanese life insurance industry of today. In the past, salespersons
would be present at many ceremonies held by companies to welcome
new recruits. These salespersons would encourage people to take out life
insurance in what amounted to a ritual of sorts for new company employees.
Life insurance companies often relied on the personal connections and sales
skills of these salespersons to sell insurance policies. Unlike what happens inother industries, life insurance companies found that there was little need todevelop their own marketing expertise.
In 2005, however, the Personal Information Protection Act came into
force to make the management of information by companies and employees
stricter. This made it more difficult than ever for salespersons to freely barge
into a company’s workplace or cafeteria and compelled changes to be madeto the traditional approach to insurance solicitation.
It was then that insurance shops and other independent agencies thatemerged at the turn of the century began to rapidly expand sales. While
insurance brokers who play a central role in the selling of insurance in55

the United States and Europe came to be established in Japan thanks toamendments made to the Insurance Business Act in 1996, their existence
unfortunately is largely unknown to the public. It is in this environmentthat insurance shops and other independent agencies have been steadily
expanding the size of the market with each passing year.
Independent agencies conclude sales agency outsourcing agreements withinsurance companies and accept a solicitation commission as consideration
whenever a policy is signed. In this way, they occupy a different position frominsurance brokers who are unaffiliated with any given insurance company
and who broker insurance policies independently of insurance companies.
However, independent agencies are highly regarded by clients for their basic
neutrality and their approach to solicitation, whereby insurance productsthat best meet the needs of each client are proposed from among multiple
insurance options. They have come to wield substantial influence in the life
insurance industry today. For this reason, major life insurance companies arealso establishing life insurance subsidiaries exclusively for insurance shops
and otherwise pouring resources into this area.
While many might wonder why a life insurance company would go outof their way to set up a life insurance subsidiary exclusively for independentagencies rather than sell insurance products on its own, the reason lies in thefact that life insurance products differ significantly between those that are
sold by salespersons and those that are sold by independent agencies.
A salesperson belongs to a single company and can take his or her time
proposing an insurance product that meets the needs of a client without
making comparisons with products offered by other companies. For thisreason, the contents of coverage might be very generous but premium levels
would generally be quite high. On the other hand, an independent agency
would submit a proposal to a client by selecting promising products fromamong insurance products made available by multiple insurance companies,
which means that they would be required to propose a policy with relatively
56

3 Turning points in the insurance industry

simple coverage options at a competitive premium level. Competitionin terms of premium level has been especially intense in recent years andcompanies have been lowering premiums at the expense of profitability tosome extent in an attempt to secure market share. In other words, since thecontents of insurance products sold through both channels are completely
different, there is a need to establish separate life insurance subsidiaries.
Incidentally, it should be noted that businesses operated with the use of theInternet have become essential in this era. In the non-life insurance industry,
non-life insurance companies that primarily sell automobile insurance
exclusively through direct sales began cropping up at the tail end of the
1990s. Policies were initially sold via postal mail or the telephone but thefocus in this area gradually shifted to sales via the Internet, such that theshare attributed to direct sales-based automobile insurance has increased toover seven percent of the entire market for automobile insurance.
On the other hand, the life insurance industry was lagging the non-life
insurance industry by around a decade. In 2008, two insurance companies
that sold life insurance exclusively online were established for the first time
ever. At the time, I too was transferred to a preparatory company for theestablishment of an online-only life insurance company in 2007. From the
day after I joined the company, I visited the authorities dozens of times
over the following three months to negotiate for approval. In the evening, I
attended my own farewell and welcome party before returning to the office
and working until the middle of the night to prepare documents for approvalnegotiations scheduled to be held the next day. As this went on for days at atime, the feeling of elation I felt when we were finally granted approval toset up Japan’s first online-exclusive life insurance company in March 2008
was enormous. At the time the new company was established, we imaginedthat the Internet would end up accounting for an exceedingly large share of
the life insurance market in ten years’ time and really expected to see a very
high level of media interest in this new trend. Unfortunately, however, sales
performance has not been very good. Three major reasons can be put forth to57

explain what happened.
The first reason is that life insurance is a passive commodity in that clients
do not actively seek to take out life insurance but rather come to consider
taking it out when their own lifestyle changes or when someone around themfalls ill or dies. Japanese people currently have a very low level of literacy
when it comes to financial products in general, including insurance. Unlike
the case with automobile or fire insurance, which are types of insurance
that you can more easily conceive of as being useful in case of an accident
such that you would be more willing to consider taking out such insurance,
clients who can choose the best life insurance products for themselves are
unfortunately quite rare.
The second reason is that marketing skills are possibly lacking in life
insurance companies. As mentioned earlier, if salespersons, agencies, orother solicitors sell life insurance, the marketing activities undertaken to findpotential clients are performed by the salespersons or agencies themselvesin a majority of the cases, which means that life insurance companies havenot been accumulating their own marketing know-how. If a life insurancecompany wishes to sell directly to clients via the Internet without using
salespersons or agencies, however, it needs to engage in its own marketing
activities to attract potential clients and convince them to sign policy
contracts.
Finally, I believe that the third reason has to do with the contents of theinsurance products that are provided. If life insurance is sold online, thecontents of coverage should be simple and easy to understand in order tobe understood by clients, and the level of premiums should be set to a low
amount. However, since clients are not met face-to-face, you need to take
into account the fact that you could end up developing a product that is more
exposed to the moral risk that the client might improperly make a claim or
request benefits. Thus, it becomes difficult to offer coverage that is more
attractive to the client, such as coverage that would entitle the beneficiary toreceive a large sum of money in a lump sum.
58

3 Turning points in the insurance industry

Figure 7

Enrolment channels for most recently enrolled
policies (private insurance)

(%)
80
70

68.1

68.2
59.4

60

53.7

50
40
30
20

13.7

0

6.9

6.4

10
2.9

4.5

FY2009FY20122.2
FY201517.8

3.3
FY2018Source: National Actual Condition Survey on Life Insurance (Japan Institute of Life Insurance)

Figure 7 outlines the sales channels through which clients actually takeout life insurance. While the rate at which life insurance is being purchased
through insurance shops and other insurance agencies is steadily rising, therate at which life insurance is being purchased online remains unchanged.
In the modern life insurance industry, exceedingly tough competition forsales is playing out through insurance shops and other agencies as well as theInternet. For this reason, life insurance companies are fighting desperately
to prevail in the competition for sales by setting very low premium rates atthe expense of profits to some extent. This competition for pricing in the life
insurance industry was no doubt triggered by the rise of new channels andthese channels are expected to continue growing in size in the future.

(11) Financial planners and insurance rankings
If I remember correctly, financial planners (hereinafter referred to as FP)– while they are not directly linked to insurance companies – have been wellknown as an occupation to the general public since the turn of the century.
Their profile gradually grew thanks to their ability to dole out advice on59

a wide range of financial topics in part due to the generally low level offinancial literacy among Japanese people. These days, FPs can be routinely
seen on television and in magazines as a matter of course and certified
financial planning technicians have become a national qualification, suchthat there are likely very few people who are unaware of the existence ofFPs. Some FPs engage in insurance soliciting activities as solicitors whileothers do not. Sometimes, an insurance company or agency will have theirsalespersons or solicitors become certified and referred to formally as FPs.
Since there are also some who do not engage in insurance soliciting activities
but make a living solely through writing, seminars, and lectures, you can saythat there is no strict definition of the scope of duties carried out by FPs.
Incidentally, since the issue of the nonpayment of claims arose in theinsurance industry, as mentioned earlier, between 2005 and 2007, thedistrust of insurance companies on the part of clients has become deeply
rooted. Against this backdrop, FPs came to occupy an important position in
the insurance industry. In other words, this development was rooted in thepsychology of clients, who cannot trust anything that insurance companies say
but who are inclined to believe something a FP, as a third-party expert, mightsay. Thus, many insurance companies increased opportunities for interactingwith FPs and began to proactively engage in activities to encourage FPs towrite articles favorable to them and their products as much as possible. WhenI was working for an online-only life insurance company, we would holdmany workshops for FPs and otherwise actively disseminated information to
FPs to ensure that our existence would be known by members of the generalpublic. These days, a rather substantial number of life insurance companies
value interactions with FPs highly and accordingly hold workshops andsocial gatherings on a regular basis. When I was working for an online-onlylife insurance company, I got to know many FPs and still hang out with quite
a few of them on friendly terms. I daresay that I have more friends who are
FPs than friends who work for insurance companies. When people working
for rival insurance companies find out this fact about me, they sometimes60

3 Turning points in the insurance industry

come right out and ask me how I am able to become friends with FPs? Of
course, I take it as a matter of course that, since FPs serve as neutral advisors
to clients, articles that are critical about products that my company offers areoccasionally written by FPs with whom I am on good terms. In that sense,
interactions with FPs are a lot like interactions with the media.
Incidentally, Insurance Ranking is a feature that was started by a certain
magazine and that is now quite influential in insurance circles. Since it is a
popular feature that is bought and read by not just members of the generalpublic but also insurance company employees and insurance solicitors, many
print and digital media outlets these days put together insurance features andincorporate Insurance Ranking into these features. The Insurance Ranking
does not always correspond neatly to actual sales of insurance products but,
since it is regarded as a ranking akin to an objective report card on insurance
products as compiled by third-party experts, those who are in charge of
product development at insurance companies have come to be highlyinterested in the results and findings. I too am always alternating between
optimism and fear when it comes to the Insurance Ranking results. Since
FPs are very often the ones who vote for the Insurance Ranking feature,
insurance companies have come to be even more invested in building close
relationships with FPs. When the Insurance Ranking feature is about to bereleased by the well-known magazine in question, there are certainly morethan a few public relations people with insurance companies out there who
make a strong push to become buddies of sort with FPs.
These days, the term fiduciary duty has become a widely used term in theindustry.
In the insurance industry, this term refers to the responsibilities that are
to be fulfilled by insurance companies and solicitors towards their clients.
Simply put, someone selling insurance products needs to propose an insurance
product that is optimal for each client and excessive levels of entertainment
or conferred awards by an insurance company towards insurance solicitorsthat warp this principle are prohibited. In addition, insurance companies are61

no longer allowed to hold sales campaigns and their sales practices are now
subject to stricter constraints. On the other hand, leading FPs are wined anddined to a substantial extent in response to the focus that is being placed on
the strong external influence that they wield but this is really no different
from the actions taken towards insurance solicitors. Consequently, there is afear that the neutrality of FPs may become distorted.
In any case, we are now in an era in which neutrality and objectivity ininsurance solicitation activities are required to a greater extent than everbefore, such that the role to be played by FPs in the insurance industry will
likely remain important.

(12) Formulating new rules for insurance solicitation
As the insurance industry continues to undergo deregulation, insurance
products have undergone liberalization and forms of selling have become
diversified. In the life insurance industry in particular, the market share heldby insurance shops and other agencies has risen and their influence on theinsurance industry as a whole has grown stronger, thereby necessitating theformulation of new insurance solicitation rules. In the context of incorporatingthese rules, amendments to the Insurance Business Act came into force in
May 2016. These amendments resulted in the introduction of solicitation
regulations requiring proactive client relations in addition to regulations
that had previously been prohibited when undertaking insurance solicitation
activities. Insurance solicitation was also more clearly defined and the partsof the process from the discovery of prospective clients to the signing ofpolicies that do not correspond to insurance solicitation were newly definedas “solicitation-related actions”. While “solicitation-related actions” might bea term that is difficult to understand, it refers to such actions as the provisionof information on prospective clients to an insurance company or solicitor
without executing an insurance recommendation or explanation, and actions
that do not amount to anything more than reproducing information from aninsurance company or solicitor on a comparison website designed to provide62

3 Turning points in the insurance industry

information on insurance products.
The themes at the heart of these amendments to the Insurance BusinessAct consisted of (1) the introduction of an obligation to ascertain intent and(2) the introduction of an obligation to provide information.
(1) With respect to the obligation to ascertain intent, insurance companies
are now required to propose insurance products that are in line with the risks
faced by and needs of the client after having ascertained the foregoing.
(2) With respect to the obligation to provide information, insurancecompanies are now required, when soliciting insurance, to provide
information to allow the client to determine whether he or she wishes to enrol
in insurance. Specifically, an insurance company should provide explanations
regarding the contents of coverage provided by an insurance product andinformation on ancillary services tied to the product (policyholder services)that are tightly linked to the insurance product, such as roadside services
attached to an automobile insurance policy. An independent agency dealing
with insurance products offered by multiple insurance companies is also
required to provide information outlining insurance products for comparative
purposes in line with the needs of clients and give reasons for recommending
certain products to the client.
For a large independent agency, the formulation of these new rules came to
be a substantial burden in practice. However, it can be said that developing aframework in accordance with these new rules enabled independent agencies
to become an even more neutral sales channel.
As sales channels become increasingly diversified in the insurance
industry, all sales channels will be required to be more client-oriented in theiractions.

63

64

4 The current environment in which the insurance industry operates

4

 he current environment in which theTinsurance industry operates

Although the insurance industry has evolved through the twists and turnsof various events that have occurred in the past, I would like to explore thecurrent environment in which the insurance industry operates.

(1) The spread of COVID-19
In Japan, COVID-19 has been spreading since the beginning of 2020.
Most citizens were required to stay at home and change the way they worked.
These days, most meetings take place online and more companies utilize
Zoom or Microsoft Teams for this purpose. Since many employees no longer
need to report to the office due to an increase in work that is carried out at
home, high-rent deluxe downtown offices have become veritable money pits
to such an extent that some companies are trying to sell their headquarters or
move to more rural settings.
Dramatic changes in the lifestyles of many people also had a significant
impact on the solicitation of insurance. In particular, the life insurance
industry appeared to have been more affected than the non-life insurance
industry. Previously, life insurance was sold by taking the time to get to knowwhat the client needs and explaining the contents of coverage through faceto-face interactions. Since social distancing became established as a concept
and it became more difficult to meet clients, life insurance companies –which primarily solicit insurance on a face-to-face basis – suffered from asignificant drop in sales of new policies. Forced to change their approach
to solicitation, many life insurance companies thus developed means ofmeeting clients in online spaces. In addition, many life insurance companies
65

introduced a solicitation process based not on seal and signatures affixed
to paper applications but on online applications for concluding contracts.
Moreover, companies are transitioning from paper to online for insurance
booklets (policy conditions), which must be distributed in advance during thesolicitation process. Since insurance is a licensed business, however, manyactions that can be taken by insurance companies are limited by the basic
licensing documents that are equivalent to the constitution for insurancecompanies. Nevertheless, many life insurance companies continue tomake improvements in order to build a more advanced online solicitation
framework for themselves.
There are also life insurance companies that are attracting clients with theuse of web marketing techniques and attempting to take this opportunity todevelop a solicitation process for completing applications online without theneed for insurance solicitors. Some life insurance companies are reviving
mail-order sales through newspaper ads – a practice that had been in decline
in recent years – and managing to increase sales accordingly. An Internetonly life insurance company was launched in 2008 and thereafter seemed topresage the arrival of an age in which life insurance would be purchased via
the Internet. This trend, however, has appeared to stall in recent years. Somehave suggested that this was due to the occurrence of the Great East-Japan
Earthquake, which helped to remind everyone of the advantages of face-toface sales. I do not believe this to be true though. Nobody enthusiasticallyseeks to purchase insurance on his or her precious day off in the same way thathe or she might purchase a book or CD through Amazon. If you are a typicalclient, purchasing insurance is a truly tedious task that you do not normallywant to think too much about. Instead, you think about purchasing insurance
out of a sense of obligation when necessity comes knocking on your door. It
might be an inappropriate comparison, but it is somewhat viscerally similar
to the notion of filing your taxes. The spread of COVID-19 forced many
people to work from home, which helped to free up time that had previously
been spent commuting or preparing to go out. As more and more clients are66

4 The current environment in which the insurance industry operates

feeling anxious about their future lives, I believe that this free time represents
a good opportunity for these clients to review their insurance, which may
have been an issue that had been lingering in the back of their minds. Luckily,
many magazines these days feature insurance stories and rankings, such that
there are a lot more ways for clients to gather information on insurance.
Furthermore, there are plenty of insurance comparison websites that makeit easy to go online and compare insurance products offered by multiple
companies. As a result, the number of clients purchasing life insurance via
the Internet and other mail-order sales channels exploded during the spreadof COVID-19.
Incidentally, allow me to switch gears and note that insurance companies
have long made societal contributions through special actions, such as byoffering grace periods for the payment of premiums, in the event that a large
earthquake or typhoon or other natural disaster occurs and gives rise to a large
number of victims. With COVID-19 in particular, society as a whole sufferedtremendous damage. In response, the insurance industry implemented special
actions at the highest level imaginable. While these actions differed in theirdetails from insurance company to insurance company, the following special
actions were primarily undertaken:• In most cases, asymptomatic patients and patients with minor illnesses
are not admitted to hospital but are instead instructed to recover athome. Thus, medical insurance and other types of products that provide
coverage for hospitalization for an illness (compensation) came to extend
coverage to stays in a facility and home treatment at the instruction of a
doctor despite the fact that hospitalization was originally a condition forthe payment of insurance money (benefits) with these products.
• For products that provide (compensatory) coverage in the event thata specific infectious disease is contracted, such as a catastrophe rider67

or specific infectious disease risk compensation rider, COVID-19 was
added to the scope of coverage for the payment of insurance money(benefits).
• While insurance policies are sometimes underwritten for clients withpreexisting conditions by attaching special conditions, such as reduced
payments of insurance money or non-payment for certain parts of thebody, insurance companies decided to pay insurance money (benefits)
without applying these special conditions in cases where a client
contracted COVID-19.
• With many savings-type products, there is a system that allows for loans
to be made to policyholders, who can borrow money up to a certain
percentage of the surrender value without having to cancel the policy.
As a special action, insurance companies waived the interest that would
normally be charged for a policyholder loan.
• In the event that an employee or customer of a client company contracts
COVID-19 and the company's office or establishment has been
contaminated or might have been contaminated, the client company would
incur costs to provide leaves of absence and disinfect the workplace or
facility. Insurance companies decided to provide compensation in thesecases.
• For renewable insurance policies, insurance companies extended a grace
period of a certain duration for renewal procedures and the payment ofpremiums.
There are also insurance companies that, upon perceiving the societal threatof the spread of COVID-19 instead as a business opportunity, succeeded inselling a large volume of new policies by marketing insurance products that68

4 The current environment in which the insurance industry operates

provide general coverage (compensation) in the event that the insured party
contracts or sustains damage from COVID-19. Such insurance products,
however, are products that anyone with any experience developing products
at an insurance company would likely devise at some point in his or her
career. This is because, given the fact that COVID-19 is the central focus of
the news no matter where in the world you go, you are not required to evoke asense of need in clients, which is what is required when it comes to insurance
products designed to indemnify. The more a risk materializes, the more you
should realize that there is no better time to sell an insurance product that
addresses that risk. For instance, let us say that the news reports that a famous
person dies of cancer. That is when cancer insurance sales suddenly spike.
The number of persons purchasing earthquake insurance increases whenevera major earthquake strikes.
Figure 8 below is a graph showing the annual changes in the rate at whichhouseholds have been purchasing earthquake insurance plotted against
major earthquakes that have occurred in recent years. Following the Niigata
Earthquake of 1964, Kakuei Tanaka, a native of Niigata Prefecture and a
Figure 8

Annual changes in the rate at which households
purchase earthquake insurance

Rate at which households purchase earthquake insurance

Hokkaido Eastern
Iburi Earthquake
Kumamoto Earthquake
Great East Japan Earthquake
Niigata-Chuetsu Earthquake

19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19

Tokachi Offshore Earthquake
Western Tottori Earthquake
Great Hanshin-Awaji Earthquake

Source: Produced by the author based on materials released by the General Insurance Rating Organization of Japan

69

highly influential person in government at the time, spearheaded efforts
that led to the birth of earthquake insurance in 1966. The percentage of the
population that had taken out earthquake insurance stayed low for a longtime before it started to gradually rise due to the occurrence of several large
earthquakes subsequent to the Hanshin-Awaji Earthquake of 1995.
The Great Hanshin-Awaji Earthquake occurred when I was working insales for a non-life insurance company. It may seem inappropriate, but I went
about proposing earthquake insurance to clients in the wake of this disasterand found clients to be surprisingly receptive. It may be correct to point out
that actions taken to point out to clients the existence of such risks “inducesanxiety in clients and helps foster a sense of dislike towards insurancecompanies”.
In returning to the topic at hand, the question as to why insurancecompanies did not all set out to develop insurance products with a focus on
risks related to COVID-19 naturally arises. The answer lies in the existenceof cumulative risks. Generally speaking, insurance companies distribute risks
by underwriting similar risks for a large number of clients and convertingthem into a fixed amount in premiums. For example, if a fire covered by fire
insurance were to occur, the insurance company would have to pay a large
sum of insurance money. By underwriting a large number of fire insurance
policies for a broad swath of clients across the country, the law of large
numbers would come into play. Since the rate at which fires occur converges
to a certain value, the insurance company can predict the expected value of
insurance money to be paid out each year to a certain extent. For risks that
could potentially materialize at the same time, such as in the case of thebankruptcy of Lehman Brothers or the breakout of a pandemic, however, thelaw of large numbers would not come into play. In other words, if a situation
involving the continued spread of COVID-19 were to arise, an insurancecompany would need to pay huge sums of insurance money that could
severely undercut its profits. Thus, in selling such an insurance product, an
70

4 The current environment in which the insurance industry operates

insurance company would of course need to constantly monitor changes in
the number of persons infected with COVID-19 as well as ideally formulate
and implement an exit strategy for suspending sales if the number of infected
persons were to suddenly increase upon comprehensively taking into accountthe amount of capital the company has available to cover the risk in question
and the state of reinsurance coverage that the company has taken out foritself. Indeed, there were insurance companies that actually reviewed sales of
new COVID-19 insurance policies in response to an increase in the numberof infected persons. I believe that the development of insurance products thatare designed to proactively deal with the spread of COVID-19 based on theview that such a situation represents a game-changing opportunity, wheresuch development is undertaken in a way that is predicated on a thoroughcommitment to risk management of this kind, is ultimately meaningful tosociety.

(2) Low interest rate environment
In Japan, a state of low interest rates has been pervasive since the collapseof the bubble economy. Interest rates dropped even further with the adoptionof the negative interest rate policy on January 29, 2016.
An individual annuity insurance plan offered by a certain life insurancecompany that I purchased on the recommendation of a friend at the time I
began working fresh out of university corresponded to an expected interest
rate of 4.75%, which is a level high enough to be unimaginable today.
As interest rates declined, I was encouraged to switch to a new policy by
the underwriting insurance company, but I held my ground and refused. I
have carefully kept this policy as a treasured insurance policy for my own
retirement.
Figure 9 shows how interest rates on ten-year government bonds since1990 have been steadily falling.

71

Figure 9

Interest rates on ten-year government bonds

Interest rates on ten-year government bonds
9
8
7
6
5
4
3
Adoption of a negativeinterest rate policy by the
Bank of Japan (2016)

2
1
0
19

90

19

95

20

00

20

05

20

10

20

15

20

20

Source: Government Bond Interest Rate Information (Ministry of Finance)

Apart from banks and securities firms, there may be some who are
wondering why insurance companies are affected by low interest rates. Is it
because insurance companies also sell savings-type products? It is true thatthe interest rate on savings is set for savings-type products like individual
annuity insurance and savings-type accident insurance by referencing interest
rates on government bonds. In addition, savings-type insurance premiums
comprising the underlying asset for the annuities and matured endowmentsthat are to be paid to the client in the future are directly affected by low
interest rates since they account for a large percentage of total premiums.
However, insurance companies are affected by low interest rates when it
comes to not just savings-type products but also pure indemnifying products.
This is because the insurance company needs to invest premiums received
from clients to prepare to pay insurance money and benefits in the future,such that, if the actual yield from investments falls short of the expectedinterest rate on a given insurance product, the insurance company will needto assume the difference itself. Article 97 of the Insurance Business Act
stipulates that the essential business of an insurance company is as follows.
“Investing assets” is positioned alongside “underwriting insurance”, which72

4 The current environment in which the insurance industry operates

is an indication of just how important these operations are for an insurancecompany.
Article 97 (Scope of business)(1) An insurance company may, in accordance with the class of licenses
provided under Article 3, paragraph (2), underwrite insurance.
(2) An insurance company must invest assets such as money received as
insurance premiums by any of the means specified by Cabinet Office
Order, such as acquisition of securities.
While the expected interest rate for an insurance product needs to be set at
a conservative level for pricing purposes, an increase in premiums naturally
results from a lower expected interest rate, such that the appeal of the productin terms of competition with other companies is diminished. In this sense,
lower interest rates are more likely to affect life insurance companies, which
tend to sell insurance products that correspond for the most part to longer
insurance terms, more than they do non-life insurance companies, which
tend to sell many insurance products with a one-year term of insurance
for which expected interest rates have almost no impact on premiums.
The Nikkei Stock Average fell mightily in the wake of the collapse of the
bubble economy. There is no doubt that many people still remember seeing
news stories that claimed that most life insurance companies would almost
certainly face a financial crisis if the Nikkei Stock Average fell below 8,000
yen. Many life insurance companies did in fact go under in the wake ofthe collapse of the bubble economy, with some being acquired by foreigncompanies and others being forced to merge with rivals. High-yield savingstype products that promised to yield maturity proceeds of 1.2 million yen inten years’ time in return for 1.0 million yen in premiums disappeared. If thecontents of coverage are attractive, however, a certain volume of sales can be
expected. For example, I still have the savings-type accident insurance policy73

I purchased when I was working for a non-life insurance company. While the
one-time insurance premium amounted to 500 thousand yen and the maturity
return after five years is significantly less than 500 thousand yen, I still renew
this policy every five years as it is set to mature since the compensationthat would be forthcoming in case of death, a hospital admission, or hospital
visits stemming from an injury or indemnification of liability for any damage
caused to a third party is highly appealing. For a savings-type product that is
not appealing in terms of coverage (compensation), decreasing the expectedinterest rate is directly linked to a diminishment of product appeal and asubstantial drop in sales volume. For this reason, insurance companies might
continue to sell savings-type products by setting the expected interest rate
at a slightly unreasonable level. This is because once an insurance company
withdraws from the market, it will lose the trust of clients as well as banks andother agencies, such that it could result in its non-acceptance by the market
even if interest rates were to rise again in the future to make it possible toonce again sell attractive savings-type products. Accordingly, an insurancecompany will be tested on their management prowess in terms of how it canformulate investment plans and on what kinds of savings-type products it
will sell to ensure that it is not rejected by the market when it operates in thissort of low-interest rate environment.

(3) An aging society with a declining birthrate
In Japan, the economy has been sputtering along for an extended periodof time since the collapse of the bubble economy at the beginning of the
1990s. This period has been referred to as, among other terms, the “losttwenty years”. We could no longer count on GDP growth happening and wasovertaken about a decade ago by China, with whom the gap in the size of theeconomy has only widened since then.
We become keenly aware of the fact that the yen has declined in value
whenever we travel overseas. It is against this backdrop that the birthrate has
decreased precipitously and the population of Japan has been shrinking. It is74

4 The current environment in which the insurance industry operates

said that Japan is becoming an aging society with an ultra-low birthrate thelikes of which has never before been seen in the world.
Figure 10 Total population of Japan (unit: thousands of people)
0

1,000

2,000

3,000

4,000

5,000

6,000

male

female100 years or older
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
6,000

5,000

4,000

3,000

2,000

1,000

0

Source: 2019 Population Projections (Statistics Bureau, Ministry of Internal Affairs and Communications)Figure 10 breaks down the population by age bracket in Japan and reveals
a very distorted shape for a single country’s population pyramid.
According to population projections current as of September 15, 2021,
as released by the Ministry of Internal Affairs and Communications,elderly persons aged sixty-five years or older account for 29.1% of the total
population, which makes Japan the top-ranked country in the world in termsof this figure and places the country far ahead of second-place Italy (23.6%).
At the same time, advances in medical technology now allow people tolead long lives. The average life expectancy of Japanese people in 2019 was
81.41 years for men and 87.45 years for women; both of these figures were
all-time record highs. Average life expectancy is expected to continue to rise
thanks to advancements in medical technology, such that the arrival of the eraof 100-year lives appears to be imminent.
In recent years, the term “2025 Problem” has become a much-discussed
part of the common discourse. The 2025 Problem refers to the concerns overrapid increases in medical, long-term care, and other social security costs that75

will have to be assumed when everyone born between 1947 and 1949 in thefirst baby boom generation to emerge after the end of the Second World War– in other words, the so-called baby boomers – becomes latter-stage elderly
persons (seventy-five years of age or older). In 2025, it is expected that the
population of latter-stage elderly persons will balloon to approximately 22
million persons, which means that one in four citizens will be seventy-fiveyears of age or older. The pension system likewise faces the same problem,
such that the population is expected to shoulder a huge financial burden as
the lower birthrate and aging of the population make it impossible for those
who are younger, who are relatively few in number, to support the manymembers of the older generation.
There are workforce issues to contend with as well. Employing foreign
workers is not enough and many companies are raising the retirement age
for their employees. Currently, the retirement age is set to sixty-five years at
many companies. Amendments made to the Act Concerning the Stabilizationof the Employment of Older Persons, which came into force in April 2021,
require that companies ensure employment up to the age of seventy years.
While this is a rule calling upon companies to make a best effort in thisregard, it is said that it will eventually be rendered mandatory. For elderly
persons themselves, pension amounts to be received in the future will hardly
be sufficient, as pointed out by the existence of the “issue of 20 million yen
for old age”. Thus, unless you have enough money saved up, you will needto continue working to earn money for your retirement.
In response to such changes in the social environment, many insurancecompanies are reviewing their sales and product strategies.

(4) Rising national healthcare costs
As the number of elderly persons increases, national healthcare spendingin Japan has been rising with each passing year and reached an eye-watering
43,394.9 billion yen in fiscal year 2018, accounting for 7.91% of GDP.
Figure 11 outlines the amount of national healthcare spending in Japan
76

4 The current environment in which the insurance industry operates

and the percentage of GDP accounted for by national healthcare spending
and reveals that both are rising over time.
Figure 11

National healthcare spending and the percentage of GDP accounted forby national healthcare spending

National healthcare spending(x 100 million yen)
500,000

National healthcare spending (x 100 million yen)
Percentage of GDP accounted for by national healthcare spending Percent (%)
9.00

450,000

8.00

400,000

7.00

350,000

6.00

300,000

5.00

250,000

4.00

200,000

3.00

150,000
100,000

2.00

50,000

1.00

0

1989

1996

2003

2010

2017

0.00

Source: Overview of National Healthcare Spending in Fiscal Year 2018 (Ministry of Health, Labour and Welfare)If we were to extrapolate healthcare spending as reported by the Ministryof Health, Labour and Welfare in 2018 to determine its future outlook, we
can expect to see it at around 80 trillion yen in 2040, when the population ofelderly persons will peak; at that time, healthcare spending will account for
approximately ten percent of GDP. Since this assumes that GDP will growby around forty percent, however, national healthcare spending could end
up actually accounting for fourteen percent of GDP or more if GDP fails toincrease.
The average length of hospitalization in Japan in terms of number of days isdecreasing year by year to the point where it is now less than thirty days. The
average length of hospitalization in the West, however, is around five to tendays according to OECD data, which means that the length of hospitalizationin Japan is far and away the longest among industrialized countries. When I
bring this up with people living overseas, they are almost always surprised.
Thus, I expect to see government policymakers try to further shorten hospital
stays, which accounts for a significant portion of medical costs, in order to77lower national healthcare spending.
Incidentally, Japan’s public medical insurance system in principle does
not permit combined treatments that involve a mix of both treatment that iscovered and treatment that is not covered as insured treatment procedures.
This is because there is a risk that special treatment procedures that are
scientifically unproven may be endorsed if a treatment procedure that has notbeen verified for safety and efficacy is carried out together with an insured
treatment procedure.
There are, however, exceptions in such terms as evaluation treatment
procedures, patient-proposed treatment procedures, and selective treatment
procedures. Among these, evaluation treatment procedures and patientproposed treatment procedures will be assessed through future clinical testing
to determine whether or not they will be eligible for insurance coverage sometime down the line. On the other hand, selective treatment procedures are
not expected to be eligible for insurance coverage in the future and include
differential room charges and the initial consultation fees that are incurred atlarge hospitals.
The term advanced medical care, which is often discussed in the insurance
industry, replaced the term highly advanced medical treatment throughamendments made to the Health Insurance Act in 2006 and constitutes atype of evaluative treatment. While the list of medical technologies that arecovered under the category of advanced medical care is tweaked monthly, it
is to be noted that these technologies numbered eighty-five as of September
1, 2021. When advanced medical care is provided, the total cost of the
medical technology to be covered is assumed by the patient on an out-ofpocket basis. The cost per administration of advanced medical care varies
widely and ranges between tens of thousands of yen to millions of yen.
Private-sector insurance companies have been primarily selling advanced
medical care riders as riders attached to medical insurance or cancer
insurance policies in order to help clients pay for advanced medical care. Withpremiums of around 100 yen a month, these riders are very popular among78

4 The current environment in which the insurance industry operates

clients, as seen in the fact that over ninety percent of medical insurance
policies are sold with these riders attached. These riders were originallydeveloped mainly for the purpose of covering heavy particle therapy andproton beam therapy, which can cost around three million yen per patient.
In recent years, however, lens reconstruction based on the use of multifocal
intraocular lens, which is an advanced medical treatment procedure related
to the treatment of cataracts, has been causing many problems. This medical
technology is not the sort of technology that needs to be applied as quickly
as possible. Since the patient can control the timing of treatment to somedegree, there were a number of cases in which it is believed that the patient
probably purchased multiple advanced medical care riders right before
undergoing treatment on the assumption that he or she would indeed beundergoing treatment in due time. As a result, the payment rate for advanced
medical care riders offered by each company worsened significantly. At theend of March 2020, however, this treatment procedure was removed fromthe scope of advanced medical care and placed in the category of selective
treatment procedures, thereby putting an end to an issue that had been
vexing insurance companies. Nevertheless, the news that some fertility
treatment procedures will now be included in the category of advanced
medical treatment procedures has companies trembling with fear. The sameproblem will continue to occur since advanced medical care riders will pay
out benefits even if advanced medical treatment procedures are not coveredat the time of enrolment as long as the time of treatment comes within theterm of the policy and the treatment in question is covered as an advanced
medical treatment procedure.
At a time when national healthcare spending is turning the screws on theJapanese economy, the expectations placed on advanced medical care riders
sold by private-sector insurance companies have increased even further. Thereare even clinics that check with patients to ascertain the type of coverage heor she has obtained through a private insurance policy before different typesof treatment are performed. We expect to see many new medical technologies
79continue to be brought within the scope of advanced medical treatment
procedures in the future. Medical insurance sold by insurance companies
will likely be required to play an even greater complementary role alongside
the public medical insurance system.

(5) Technological developments and FinTech
Technology has evolved in remarkable ways in recent years and the waveof technological developments has even reached the shores of the financial
industry. A portmanteau of finance and technology, the term FinTech isprobably familiar to many people. It is used mostly to refer to a financial
service that is provided with the use of technology. Blockchain technology
used for cryptographic assets (virtual currency) is another example of
FinTech. Many financial institutions are conducting research on FinTech
and have formed partnerships with IT ventures related to FinTech. Manycompanies have even dispatched employees to Silicon Valley, the home of
FinTech.
This wave of technological developments has also reached the shores of
the insurance industry, which is lagging behind other industries in terms of
the adoption of IT. In the case of the insurance industry, the term InsurTech,a portmanteau of insurance and technology, is sometimes used. The adoptionof artificial intelligence (AI) and robotic process automation (RPA) in orderto streamline operations and improve productivity is easy to envisage.
At financial institutions, IT is actually being increasingly adopted for the
primary purposes of streamlining operations and reducing the need for humanresources. The news that megabanks announced that they plan to reduce theirinternal workforce by approximately forty percent had a significant societal
impact at the time.
At the same time, the use of technology for other uses is also being studied
in the insurance industry.
One entails the incorporation of technology into insurance products.
For example, in the case of automobile insurance, driving history can80

4 The current environment in which the insurance industry operates

be recorded to help quantify driving skills, the results of which can thenbe reflected in insurance premiums. In addition, the use of wearable
terminals and other forms of technology can allow for the monitoring ofa life insurance client’s health condition in real time. A system can thenbe developed to enable premiums to be modified accordingly during theterm of the policy or the payment of a refund at regular intervals. Many
examples of risk-segmented insurance products have been available on themarket for a while now. With these products, premiums vary at the timeof enrolment according to the risks corresponding to the client, such as interms of the client’s blood pressure reading or smoking status. The use of
new technologies, however, allow for greater precision to be applied to thesegmentation of risk and during the term of the policy. In the case of life
insurance, this is generally referred to as health promotion-type insurance
and will be explored below.
In addition, technology can also be used for services that are attached tothe insurance product and that can be used by the policyholder for free when
the insurance product is purchased (called policyholder services). Many suchproduct services in the past involved the use of a telephone and primarily
consisted of such services as support for the policyholder when problems areencountered during an overseas trip and support in terms of seeking a second
opinion at a different hospital in connection with an illness. At a time whentechnology has evolved as much as it has, however, insurance companies candeliver emergency relief supplies by drone or help a policyholder monitor hisor her own health condition with an app provided for free by the insurancecompany.
However, we are currently still at the stage of upfront investments being
made by insurance companies and where a process of trial and error is being
carried out. Many success stories will eventually emerge and companies willproceed to converge in the same direction.
The insurance industry used to be an industry that was rather stuck in
its own ways, but it has in more recent years steered itself sharply in the81direction of IT adoption, such that companies are competing to engage in
research on and make investments in new technologies.

(6) Legislation governing the intermediation of financial services
In Japan, amendments made to the Insurance Business Act in 1996 led
to the creation of an insurance brokerage system. Insurance brokers do notbelong to a specific insurance company and mediate in proposing optimal
insurance products to meet the needs of clients and in helping get insurance
contracts concluded from a neutral standpoint.
As set forth in Article 297 of the Insurance Business Act (Information to
be disclosed by insurance brokers), “An insurance broker, upon request ofa customer, must disclose the amount of commission, reward, or any otherconsideration that they receive [from the insurance company] for acting as
an intermediary…” In Europe and the United States, insurance brokers arewidely known and play an important role in the market. In Japan, however,insurance brokers are not so widely known and few people know anything
about them. On the other hand, insurance shops and other independentagencies play a similar role to that of insurance brokers from the point ofview of clients in Japan. Independent agencies make proposals from among
insurance products made available by a large number of insurance companies
in accordance with what the client needs. Independent agencies, however,are in relationships characterized by the conclusion of agency agreementswith different insurance companies and are not obligated to disclose thesolicitation commission obtained for successfully concluding a contract witha client.
In this environment, the Act for Partial Revision of the Act Concerning theSale of Financial Instruments to Improve the Convenience and Protectionof Users of Financial Services and Other Related Matters passed the Diet
in June 2020 based on a report released in December 2019 by the Working
Group on Payment and Settlement Legislation and Financial Services
Brokerage Legislation, which operated under the purview of the Financial
82

4 The current environment in which the insurance industry operates

System Council. This act came into force in November 2021. In thispiece of legislation, “Act Concerning the Sale of Financial Instruments”
was changed to “Act Concerning the Provision of Financial Services”
and “financial services brokerage business” was created as a new type ofbusiness. For the financial services brokerage business, there is no need toconclude commissioning agreements with individual financial institutions
and financial services can be brokered in all fields of banking, securities, andinsurance with a single registration. Insurance products that can be brokered
are limited to those “that are not complex in terms of specifications and that
do not require a high level of product explanations”.
It has been posited that IT companies and start-up FinTech companies
will enter the market as financial service brokers since legislation governing
the intermediation of financial services lowered barriers to entry and madeit possible to provide many financial instruments to clients on a one-stopbasis. This is because, if you were to create a proper online platform or
structure, then you would be able to automatically propose multiple
financial products in accordance with the client’s wishes and thereby
operate as a way for these companies to showcase their own technologies
and gain a competitive advantage. Of course, financial instruments in theform of insurance are not something that clients actively wish to purchase.
Insurance is typically explored in a passive manner at moments when a life
event occurs, when someone in your sphere of existence dies, or when theneed to save money for your household budget arises. In such a context,
it is conceivable that many clients would be interested if an IT company
offering a household budgeting app were to suggest that they could review
a client’s current insurance policies as part of a household savings plan andeven provide a client with the means to easily purchase insurance with hisor her smartphone. When the law came into effect in November 2021, limits
were imposed on the amount of insurance that could be sold. New entrants
will probably be limited for the time being since many products that are
mainstays in the insurance industry today – including automobile insurance83and whole-life insurance products – are exempt from the application of thelaw. This is because, if the restrictions seem to be too strict, it might not
be possible to make sufficient proposals to clients and it would be more
expedient to handle insurance as a conventional soliciting agency rather
than as a financial service broker. Naturally, there is no doubt that financial
service brokers have the potential to someday constitute an important sales
channel for clients and insurance companies.

(7) SDGs and ESG investments
Sustainable development goals (SDGs) are sustainable development
goals that were adopted by the United Nations in September 2015 and thatshould be attained by the global community with an eye towards 2030. They
comprise seventeen goals and 169 targets related to various global issues,
including the promotion of health and welfare, technological innovation,and efforts to deal with climate change. While SDGs are not compulsory,companies are required to be proactively engaged and are being encouraged
by national governments. It is also said that companies can create business
opportunities by proactively working on SDGs. This is because the level ofmarket needs for products and services tied to solutions to societal issues
in terms of the environment, health, and energy is high and companies canincrease profits by helping to solve these societal issues through business
operations. It also goes without saying that a company’s corporate image canbe burnished by proactively working on SDGs. According to the Sustainable
Development Report of 2021, which was released in June 2021, Japan wentfrom being ranked seventeenth a year before to being ranked eighteenthin terms of sustainable development among all countries in the world; thisplaced Japan lower than Croatia and Poland. Gender inequality and carbon
dioxide emissions are among the areas that remain a problem for Japan andare issues that the government is working on to properly address.
At the same time, ESG stands for environment, social, and governance.
ESG investments are focused investments in companies that are conscientious84

4 The current environment in which the insurance industry operates

with respect to the environment, social issues, and corporate governance.
A company that is rated highly in terms of ESG is said to have excellent
corporate attributes in such terms as the social significance of their businessand the sustainability of their growth.
SDGs and ESG investments correspond to the same mindset in the sensethat solving social issues imparts business opportunities to companies andinvestment opportunities to investors. In this context, there are many roles
to be played by insurance companies, whose business is of a highly public
nature. For example, many employees of an insurance company work in urban
offices where they consume huge amounts of electricity and tend to use large
amounts of paper for operations that have long been associated with a paperbased business. For this reason, insurance companies can endeavor to reducecarbon dioxide emissions by using online options for application forms andpolicy booklets as a way to not only reduce costs but also to promote SDGs.
Since insurance companies are highly influential on outside parties as
institutional investors, they are required to assess investment targets from an
ESG perspective. Of course, there will still be issues in the fact that time isneeded to investigate investment targets and in the fact that there are a limited
number of suitable investment targets, but insurance companies neverthelesshave a social responsibility to take the lead in this area.
Since the insurance business in particular is a business based on the trustand confidence of clients, insurance companies are being asked to continue
taking the initiative in promoting SDGs and ESG investments.

(8) Expectations for health promotion-type insurance
A new area of insurance products known as health promotion-typeinsurance has emerged as a topic being raised not only within the insurance
industry but also by purveyors of news stories for the general public. Of
course, simply acquiring such an insurance product will not automaticallygrant a client better health. So what exactly is health promotion-typeinsurance? The website of the Japan Institute of Life Insurance describes it
85

as follows.
Q. What is health promotion-type insurance?
A. It is insurance that provides discounted premium rates and otherbenefits for clients who engage in initiatives for the promotion of theirown health.
In other words, it is a type of life insurance with certain features, such asmechanisms for increasing or decreasing premiums and offering refunds in a
way that is linked to the client’s health condition and efforts with respect tothe promotion of health during the term of insurance. This type of insurance
began to be marketed in around 2016. Few conventional life insurance
products that are typically sold by insurance companies are associatedwith insurance premiums that change during the term of insurance. While
insurance products that provide a lump-sum payment to a client if no insured
event occurs within a certain period of time do exist, these are not directlytied to the client’s health condition and efforts with respect to the promotionof health. Indeed, this is a new genre in which insurance products have been
rendered commercially feasible thanks to technological developments.
As mentioned earlier, national healthcare spending is putting pressure on
Japan’s fiscal situation. If the birthrate further declines and the population
ages even more rapidly, there is the possibility that the country’s finances
would have a blowout due to the increase in national healthcare spending.
It goes without saying that, even if longevity were to continue increasing,
the negative impact on national healthcare spending could be mitigated if
people could maintain their health as they grow older. The purpose of the
Health Promotion Act, which came into force in 2003, is to “set forth basic
matters in connection with the comprehensive promotion of improvements
to the health of the people and have measures designed to improve the healthof the people implemented”. This purpose is perfectly consistent with thesignificance of health promotion-type insurance.
864 The current environment in which the insurance industry operates

Indeed, the reduction of benefit payments resulting from the promotionof health by clients is favorable for a life insurance company’s bottom line
even if we were to assume that premium discounts and refund payments
are provided. There are also many other benefits that health promotion-typeinsurance brings to life insurance companies. The main ones are as outlined
below:(1) A new type of product for which there is not yet much competition
Not many examples of health promotion-type insurance products are
currently being sold since it is a new genre of insurance product. For thisreason, intense competition with other companies in recent years of the sortthat you can see with medical insurance has not yet occurred. It would bereasonable to describe this state of affairs as being akin to an example ofthe blue ocean strategy. Unfortunately, no health promotion-type insurance
product that is popular with clients has yet emerged, but it would be possible
for a company to carve out a competitive advantage in terms of sales bydeveloping an attractive health promotion-type insurance product andbringing it to the market.
(2) Can expect to see benefits in terms of public relations
For insurance companies, advanced initiatives that have not yet been
attempted by rival companies can have a substantial impact and be received
well by the media, such that they are seen as being potentially highly
effective in the context of activities for public relations. While brand image
is an important element in the insurance industry, a forward-thinking image
associated with health promotion-type insurance can help define a corporate
brand for an insurance company.
(3) Can seek to retain exceptional clients
Insurance products are not always going to yield a profit when sold.
Most of them correspond to both highly profitable client segments and not87very profitable client segments. In particular, in an environment in which
competition for product development is heating up, the profitability of
products inevitably tends to decline. Companies then scratch their heads andfigure out how they can focus on selling to highly profitable client segments.
In the case of health promotion-type insurance, sales are targeted towards
the segment of the market made up of health-conscious clients. Since suchclients are typically low-risk and highly profitable, this type of insurance isan insurance product that is perfect for retaining preferred clients.
(4) More points of contact with clients
At a time when awareness of the importance of managing personal
information properly is high, there are not a lot of opportunities for life
insurance sales representatives and other solicitors to regularly interact withclients. Unlike in the past, it has become difficult for sales representatives
and other solicitors to visit clients’ workplaces. Of course, clients can be met
if an actual insured event were to occur, but it would not be easy to try selling
additional insurance to a client in such a situation.
In the case of health promotion-type insurance, however, the fact thatpremiums change and refunds are paid according to a client’s health status
and efforts in promoting health means that favorable opportunities to regularly
meet with clients can be made by sales representatives and other solicitors.
(5) Can obtain health data
When it comes to pricing life insurance, limited statistical data, such as the
Ministry of Health, Labour and Welfare’s demographic survey and patient
survey, used to be used to calculate incidence rates and other data points.
If only the same statistical data can be used by each company, however, it
becomes difficult for insurance companies to differentiate themselves bytrying to create unique insurance products. In particular, at a time when data
is becoming increasingly important, each company is striving hard to obtaindata that can be used to develop products. In this context, selling health88

4 The current environment in which the insurance industry operates

promotion-type insurance will make it feasible to obtain health-related dataon clients and thereby help in the development of new insurance products inthe future.
(6) IT know-how is accumulated
The selling of health promotion-type insurance will increase opportunities
to use technologies with which life insurance companies are unfamiliar andlead to the accumulation by these companies of proprietary IT know-how.
As insurance companies seek to interact with FinTech venture companies,
they sometimes realize that they can divert technologies for uses that had notbeen initially envisaged. Even if the use of such new technologies results ina failure, there are plenty of lessons to be learned from each failure.
Of course, health promotion-type insurance is not only advantageous but
disadvantageous as well. Typical examples of these points are outlined below.
(1) There is no established sales market
When health promotion-type insurance is sold by an insurance shop orother independent agency, it is not included in an existing product category,like medical insurance or term insurance, which means that it may not show up
in a list of products proposed to clients for comparison and recommendation
purposes. In such a case, it is not possible to expect this type of insurance tobe sold given that it is never put forth as an option that can be purchased in
the first place. While it goes without saying that this does not apply when thistype of insurance is sold by a sales representative belonging exclusively toa single company, the market for health promotion-type insurance itself has
not yet taken hold, such that it should be noted that the coverage that this typeof insurance offers may be difficult for clients to properly grasp.
(2) High explanatory burden assumed at the time of solicitation
If you are proposing a conventional life insurance product, you need to89

provide an explanation as to the contents of the coverage in question, theamount per month to be charged as premiums, and other pertinent details.
On the other hand, if you are proposing a health promotion-type insurance
product, you need to provide an explanation as to the contents of the coveragein question as you would with a conventional life insurance product as wellas additional explanations, such as with respect to cases in which premiums
might increase or decrease and cases in which a refund will be given. In thisway, a substantial amount of time will need to be spent to ensure that theclient understands what he or she is purchasing. You should be careful since
the provision of inadequate explanations at the time of solicitation could
potentially lead to the submission of a complaint.
(3) High cost of developing systems and operations
Generally speaking, the development of a life insurance product incurs
substantial costs. While these costs can vary greatly depending on the systemused by the insurance company, most cases involving a typical new insurance
product will incur several hundred million yen to several billion yen in costs.
Human resources will also be needed for the development of systems andnew operations. A long time is also needed to conduct a test (known as theUser Acceptance Test or UAT) to ensure that a system is operating correctly.
Any insufficiency in this area could give rise to defects after launch.
On the other hand, health promotion-type insurance requires complex
functions, such as with respect to the changing of premium amounts during
the term of insurance and the payment of refunds, which means that the costsof developing systems and operations would be expected to far surpass normal
product development costs. There is also a need to incorporate sensitive
information, such as health-related information concerning the client, into
the company’s own policy-management system. Since sales representatives
and solicitors belonging to an insurance company will also need to prepare
data and explanatory materials for the purpose of engaging in a discussion
with the client concerning the contents of coverage and premium rates for the90

4 The current environment in which the insurance industry operates

future, much higher costs are incurred than are incurred with conventional
insurance products.
(4) Poor reliability of data
In the case of health promotion-type insurance, some products correspondto premiums that vary according to the health condition of the insured.
Initiatives related to health condition and the promotion of health, which
are used as indicators for this purpose, need to show a close link to thepremiums that are paid for the risks in question. However, only limited data
exists when health promotion-type insurance is being developed. For thisreason, the amount of a client’s risk needs to be calculated by supplementing
existing data with data on health promotion initiatives and more. Yet, whether
the applicable premiums are appropriate or not cannot be assessed until acertain amount of time has elapsed after launch to allow the company toaccumulate a large volume of actual data. Any material discrepancy arising
between expected data and actual data could have a large impact on future
profitability.
(5) High cost of maintaining policies
In the case of ordinary life insurance, a high amount of new policy costs are
incurred in the first year of a policy but policy maintenance costs beginningin the year following will be at a lower level. In the case of health promotiontype insurance, however, many actions – such as changing the premium
amount and informing the client – will need to be performed during the termof insurance, which means that policy-maintenance costs will inevitably behigher.
Moreover, since the term of insurance is long, the system for a given
product will need to be continuously managed after its launch until all inforce policies have lapsed. Thus, if it comes to pass that sales of a given
health promotion-type insurance product are stopped and that a completely
new type of health promotion-type insurance product is launched, the number91

of in-force old health promotion-type insurance policies will shrink, thereby
making the burden of managing policies still in force exceedingly high forthe insurance company.
The above is an outline of all the advantages and disadvantages of healthpromotion-type insurance from the standpoint of an insurance company. Let
us now explore the significance of health promotion-type insurance from thestandpoint of a client.
(1) Insurance is being personalized
This is now an age in which products and services – in both the insurance
industry and other sectors – are required to be personalized. The realization of
an Internet-based society has enabled clients to easily research products andservices that interest them and companies will need to propose products andservices based on the interests, preferences, and behavioral history of clients.
When it comes to insurance, health-conscious clients tend to be averse tobeing charged the same level of premiums as clients who are not healthconscious. Thus, they can accept that premiums will change and refunds canbe received according to their health condition and by engaging in initiatives
for the promotion of health.
In consideration of the mental state of clients, however, it can also be
said that enrolling in an insurance policy and engaging in efforts to promotehealth are opposing actions. In other words, when a health checkup reveals
that your health condition has worsened, you will typically choose to do oneof the following: (A) engage in the promotion of health to restore your healthcondition or (B) take out insurance. Very few clients choose to do both at
the same time. In other words, insurance works as it should if it enables theclient to receive insurance money when he or she becomes sick, such thatengaging in efforts to promote health is thought to render the act of enrollingin insurance superfluous.

92

4 The current environment in which the insurance industry operates(2) Economically rational
In order to leave a stable life after retirement, many people would like tomaintain their health and work for a long time. Thus, health promotion-typeinsurance can be described as economically rational in that you can kill two
birds with one stone: engaging in efforts to promote health will reduce theburden of medical expenses as a reward for continuing to maintain good
health and give rise to advantages in the form of reduced premiums andrefunds issued.
On the other hand, products whose premiums vary according to healthcondition also have a negative aspect to them in that the household’s cash
flow is not stable. One of the original functions of insurance is to “equalize
future risks and replace them with a fixed amount known as premiums”. If
an insured person’s health condition were to worsen, the need for insurance
would truly increase. In such a case, however, the resulting increase inpremiums would affect the insured’s household situation like a double
whammy.
With some insurance products, it might be possible to add a premium
payment-waiver rider. If the insured person’s health condition were to worsen,
the payment of subsequent premiums would be waived under this rider in a
way that makes sense. With health promotion-type insurance, however, aworsening state of health would have an impact going in the other direction.
(3) Comes with health management features
If you are someone who works for a company, you need to undergo ahealth checkup or complete medical checkup once a year. In some cases,
however, this may not be sufficient for the purposes of managing your health,such that you might need to check on your own health condition frequently
in order to maintain your health. Depending on the health promotion-typeinsurance product you purchase, your insurance company will help you tomanage your own health to a certain extent and provide you with a programthat is designed to encourage you to engage in health-promotion initiatives.
93However, care must be taken on this point since some clients would not
be comfortable having their health condition monitored by an insurancecompany or being given advice on health from a sales representative orsolicitor as part of a regular regimen of in-person visits.
I have written about my findings with respect to health promotion-typeinsurance. It might seem as if I am opposed to the idea of health promotiontype insurance but that is not the case. While there may be a sense of unease
concerning existing life insurance products, I feel that health promotion-typeinsurance holds substantial potential in terms of being able to provide clientswith added value through the use of new technology. Of course, in today's
life insurance industry, the sense that the development of health promotiontype insurance requires upfront investments is undeniable but I believe that
health promotion-type insurance products that many customers are interested
in and that will ultimately sell well will emerge and that companies will shift
their primary focus to this type of insurance in the future.

(9) Increasing competition for sales of medical and cancer
insurance
In the independent agency market in which many life insurance companies
are desperately fighting, the competition for sales of indemnifying products
is intensifying. In this area, competition for product development is fiercest
when it comes to medical insurance. The biggest reason for this has to dowith the size of the market. According to Figure 12, the most popular typeof individual life insurance today in terms of the number of new policies
purchased is medical insurance. Medical insurance accounted for 3.5 million
out of 13.71 million new policies purchased in fiscal year 2019 (not including
converted policies) or 25.5% of this figure. In other words, one out of every
four new policies consisted of medical insurance.

94

4 The current environment in which the insurance industry operates

Figure 12 Number of new individual insurance policies
in fiscal year 2019

Other

Endowment
insurance
610,000

Medical insurance
3.50 million

Whole life
insurance
1.95 million

Term insurance
2.20 million

Cancer insurance
1.83 million
Note: Does not include converted policies.
Source: Produced by the author based on materials released by the Life Insurance Associationof Japan

In addition, the fourth highest number of new insurance policies was forcancer insurance (1.83 million). This is an indication that competition for thedevelopment of products for cancer insurance has recently become as fierce
as it is for medical insurance. This competition for medical insurance andcancer insurance spans a wide range of areas, such that companies compete
to gain as much of a competitive advantage over other companies as possible
with respect to scope of coverage, premium levels, policy underwriting
standards, and solicitation commission levels. Since subsequent insurance
products need to have higher specifications than insurance products that werepreviously released, this competition will intensify over time. In particular,
the popularity of lump-sum payment-type coverage rose against the backdropof societal conditions characterized by shorter hospital stays and the spreadof COVID-19.
In considering matters from the perspective of someone who engages in
product development, I sometimes wonder with a sense of uncertainty as towhether or not such insurance products can generate profits as envisaged.
I am reminded of the competition for product development with respect toautomobile insurance that began in the late 1990s. However, with the needsof clients and solicitors being high and many life insurance companies now
95entering the market, it is likely that we will see a lot of actors playing chickenwith the survival of their operations on the line for the foreseeable future.

(10) Headwinds for foreign currency-denominated annuity
insurance
In Japan, a low-interest environment has persisted for many years since
the collapse of the bubble economy, such that yen-denominated individual
annuities and endowment insurance plans have completely lost their appeal.
In the wake of the bankruptcy of Lehman Brothers as well, sales of variableannuities that dominated the landscape for a while as a typical savings
product sold on an over-the-counter basis by banks to that point in time also
declined. In this environment, foreign currency-denominated annuities –denominated in such currencies as USD or AUD – with attractively highinterest rates have been catching on in recent years. They can be described as
typical savings-type products in the life insurance industry today. However,the complexity of products and the inadequate explanations given at the timeof solicitation gave rise to a substantial number of complaints from clients.
Negative newspaper articles on foreign currency-denominated annuities also
contributed to the recent perception of these products as being synonymouswith bad insurance products. The main complaints that are often made about
foreign currency-denominated insurance products are as follows:• I purchased this product on the recommendation of my banker but I was
not aware that it was a foreign currency-denominated insurance policy.
• I was told that the principal was guaranteed but I was not told that there
was a foreign exchange risk.
• I was not aware that there was a deductible applicable on surrender.
• I was not given any explanation on time-lag margins.
96

4 The current environment in which the insurance industry operates• I was under the impression that the savings rate written in the prospectus
was the actual investment yield.
Generally speaking, insurance products are the central part of a commercial
operation in which an insurance company brings together uncertain risks
from many clients and charges a fixed amount known as premiums in return.
On the other hand, foreign currency-denominated insurance is a special typeof insurance product that has clients assume an exchange rate risk and anumber of other risks in order to obtain high yields. Thus, in order to have aclient sufficiently understand the contents of a product, it is vital that a careful
explanation be provided to him or her at the time of solicitation. This is evenmore applicable if elderly clients are the main targets of a product. While itis necessary for an elderly client to simultaneously understand explanations
concerning all financial instruments in the event that the monetary assets
he or she owns are to be allocated among investment trusts, fixed-term
deposits, foreign currency-denominated insurance, and more for the purposeof diversifying risks, this is difficult to realize in practice. In addition, even if
a client were to correctly understand explanations and sign a letter of intent
at the time of solicitation, it is not realistic to suggest that he or she willcontinue to correctly remember the details of a complex product over an
extended period of time after enrolment. Such circumstances could be themain reason for the complaints mentioned earlier. Of course, companies needto endeavor to make their foreign currency-denominated insurance products
as simple as possible to avoid misleading clients. Amid a sluggish interestrate environment in Japan, expectations of high interest yields – albeit on
a foreign-currency basis – are what is attractive about foreign currencydenominated insurance products. If an appropriate solicitation management
system can be put in place, I believe that a foreign currency-denominatedinsurance product is hardly a bad savings-type option and should continue tobe sold in the future.
Incidentally, it was decided that all new foreign currency-denominated97insurance policies would be added for coverage under the standard
underwriting reserves beginning in April 2022 in order to overcome thenumerous complaints that arise in connection with foreign currencydenominated insurance. Insurance companies are required to build up aconservative level of underwriting reserves based on prescribed standards.
Foreign currency-denominated insurance that is denominated in U.S. dollars
and Australian dollars are covered. While the impact on foreign currencydenominated insurance with level premium payments seems to be limited,a certain impact on foreign currency-denominated insurance with premiums
paid in a lump sum is conceivable. Consequently, there are cases in whicha life insurance company may need to revise products, increase capital, or
arrange for reinsurance.

(11) Changes in rules governing corporation taxation
There are several ways you can categorize life insurance products. One
way is to divide them between (1) individual insurance and (2) corporate
insurance.
Individual insurance (1) is insurance for individual clients that is designed
to provide protection in the event that something happens to the client or tobuild up assets for the client.
Corporate insurance (2) is simply insurance that is designed to promote thewelfare of managers and employees where the policyholder is a corporation
rather than an individual. What I wish to discuss here is an insurance product –known as corporate-owned life insurance (COLI) – that is designed to have a
tax-saving effect with a focus on the fact that a corporation can treat premiumsin whole or in part as deductible so long as the policy is canceled prior to
the end of the term of insurance. By posting paid premiums as deductible
expenses, the profits of a company can be reduced to lessen the tax to belevied. By taking such measures as canceling the given insurance policy andappropriating the surrender value in the year in which an expenditure, suchas retirement payments for officers, is incurred, a company can reduce the984 The current environment in which the insurance industry operates

actual amount of corporate tax liability over the long term. While increasingterm insurance has long been known as a tax-saving product, other types of
insurance, including term insurance and cancer insurance, have been used insales settings as tax-saving insurance options. Tax-saving insurance is stillinsurance, which means that an explanation of the coverage provided should
be given at the time of solicitation. However, there have been problems when
explanations focusing on only the tax-saving effect have been given. Sales oftax-saving products have long been promoted primarily by foreign-affiliatedand small to medium-sized life insurance companies, but this had neverdeveloped into a significant issue. Whenever an issue was discovered, theNational Tax Agency responded by issuing individual notices and revising
the tax rules and sought to make adjustments. Whenever the tax rules wererevised, however, life insurance companies developed new tax-saving
products in a vicious cycle that went on for decades. These insurance products
have been especially attractive to corporations with positive earnings against
the backdrop of persistently low interest rates.
In 2017, however, a major life insurance company that had neverpreviously been proactively involved in tax-saving products began selling
term insurance that could be used to maximize the tax-saving benefits,
which prompted many other life insurance companies to follow suit andlaunch similar term insurance policies, thereby leading to a boom in the life
insurance industry. It goes without saying that none of this would have been
an issue as long as an explanation was provided with a focus on protection.
In actual sales settings, however, explanations that focused only on the taxsaving effects were often given. As a result, the National Tax Agency carriedout major changes to the way term insurance for corporations is subject to
tax treatment. Since an announcement regarding these changes was made on
February 14, it was sarcastically referred to as the Valentine Day Shock orBlack Valentine. Many life insurance companies and sales agencies came tobe affected. Among these entities, some life insurance companies and sales
agencies specializing in the sale of tax-saving products were compelled to99change their business model.
Even after the tax rules were changed by the National Tax Agency, somelife insurance companies and sales agencies proactively sold insurance
products designed to provide a tax-saving effect. One was known as a namechange plan whereby a corporation becomes the policyholder and enrols
in a low surrender value-type increasing-term insurance plan with a low
surrender value at the beginning of the term of insurance; if the name of thepolicyholder is changed from that of the corporation to that of an individual
after the passage of a certain amount of time, the asset can be transferredwith very little capital transfer tax charged. Another involves long-term careinsurance for which the requirement for the payment of benefits is a relatively
minor need for long-term care; if the beneficiary is a relative of the insured
person rather than the insured person and the benefit amount is set to a highamount, benefits can be paid to the relative in question on a tax-free basis.
With respect to these two points, the National Tax Agency issued a notice forthe revision of rules known as the White Day Shock in March 2021; theserevised rules came into effect in June of that year. The main point of theserevised rules was to apply the previously mentioned changes to the way term
insurance for corporations is subject to tax treatment retroactively to the timeof these changes. While some industry officials argued that this represented
an infringement of their vested rights, the National Tax Agency asked the life
insurance industry in 2019 to “henceforth stop selling insurance to corporateclients through the promotion of taxation effects”. In light of this request, thiswas a response that was clearly predictable. While it appears that there arelife insurance companies that are undeterred and are endeavoring to develop
new tax-saving effects, I believe that it is highly likely that the National Tax
Agency in such cases will take similar action. Accordingly, sales of corporate
insurance based on the use of tax-saving effects will certainly dwindle even
if they never completely go away.

100

4 The current environment in which the insurance industry operates(12) The evolution of driver assistance and automated driving
technologies
As has been excitedly covered by plenty of newspaper articles in recent
times, driver assistance and automated driving technologies in automobiles
continue to evolve. Many driver assistance technologies, including collision
damage-mitigation braking and lane-keeping assist features, have alreadybeen commercialized. The national government has also engaged in efforts
to spread automatic braking and other safety technologies as part of measures
to prevent accidents caused by elderly drivers, such that many passenger
vehicles are now equipped with automatic braking features. In addition,
automatic driving technologies range in level from level 1 to level 5. In
addition to automobile manufacturers, IT companies have also entered thefray to cause competition for development and struggles for leadership to
intensify around the world. I am sure that many people saw the news story
in which Japanese manufacturers announced that they will “launch the first
automobiles equipped with level 3 automated driving technologies in theworld in 2021”. I believe that the day is not far off when fully automateddriving will be realized not just on highways where such technology can beeasily introduced but also on general roadways.
Incidentally, net premiums written for automobile-related insurance(voluntary automobile insurance and automobile liability insurance) have
conventionally accounted for approximately sixty percent of total premiums
written in the non-life insurance industry but it is clear that the impact of theevolution of driver assistance and automated driving technologies will bestrong. This is because the development of these technologies will reducethe incidence of traffic accidents. Of course, it will take quite a bit of time
for all automobiles in Japan to become fully automated and for all roads inthe country to accommodate this new reality. Until that time, traffic accidents
will continue to occur but should definitely decrease gradually.
Figure 13 shows the number of traffic accidents that have occurred inJapan. After peaking in 2004, traffic accidents have been declining and were101

reduced in number to approximately forty-five percent of the peak level forthis statistic by 2020.
Figure 13 Number of traffic accidents occurring in Japan
Cases
1,000,000
800,000
600,000
400,000
200,000
0

1989

1994

1999

2004

2009

2014

2019 Year

Source: Statistics on Road Traffic (National Police Agency)

Automobile insurance policies underwritten by non-life insurance companies
have benefited greatly from this positive development. Favorable loss ratios inrecent years have allowed companies to generate high earnings and this state ofaffairs is expected to persist for the next little while. Since the term of insurance
for an automobile insurance policy is, in principle, one year, the reference loss
cost rate for automobile insurance as calculated by the General Insurance
Rating Organization of Japan decreases with each passing year in line withthe actual loss rate, which means that high levels of profitability can only beenjoyed until such time that a premium revision is carried out.

(13) Increase in natural disasters
Fire insurance is an insurance product that is indispensable for all clients –both individuals and corporate – and has long been positioned in the non-life
insurance industry as a mainstay product after automobile-related insurance.
Modern fire insurance is not purely an insurance product that compensates
only for the risk of fire. Rather, it provides a broad spectrum of coverage,
including thunderbolt strikes, earthquakes, and such examples of natural102

4 The current environment in which the insurance industry operates

disasters as typhoons and snow as well as water leaks, theft, and damage.
In particular, two types of fire insurance providing coverage for the homesof individual clients –fire insurance with a narrow scope of coverage andhomeowner’s comprehensive insurance with a wider scope of coverage –used to be sold by all non-life insurance companies.
However, in a time of insurance liberalization, non-life insurance companies
came to develop and sell their own proprietary fire insurance plans. Whilehomeowner’s comprehensive insurance constitutes the basic insurance productin this area, each company has contributed its own unique ideas for coverage
to bring forth fire insurance policies that generally cover a wide range of risks.
In recent years, however, the number of incidents involving fire has been
declining overall in part due to the proliferation of homes with fire-resistant
structures. On the other hand, the risk of natural disasters has increased
substantially.
Figure 14 shows insurance payouts for fire insurance by type of incident
affecting residential properties and reveals that insurance payouts for natural
disasters (wind, hail, snow, and water) have increased substantially in recent
years.
Figure 14 Fire insurance / Claims paid by type ofincident affecting residential properties
x 100 million yen

Fire, rupture/explosion

8,000

Natural disaster (wind, hail, snow, water)

6,000

Water damage

5,000

Other

764

FY2012FY2010833

FY2011242

FY2009

1,000

273

520

1,237

1,108

668

FY2016

1,675

3,000

FY2015

4,000
2,000

6,275

Lightning strike

7,000

FY2018FY2017FY2014FY20130Note: W ritten basis aggregate values in fiscal year 2018 only (method of aggregating figures posted in the given fiscal
year)
Source: Aggregate figures calculated according to the method of aggregating posted figures as outlined in the“Overview of Fire Insurance and Earthquake Insurance” (as issued by the General Insurance Rating
Organization of Japan)

We are hearing more and more news about residents being forced to103evacuate due to not just earthquakes but also typhoons, heavy snowfalls, andother natural disasters in recent years. It is said that these events are due tothe effects of global warming. While losses due to natural disasters wererelatively low in fiscal year 2020, we expect to continue seeing a significant
volume of natural disasters for the foreseeable future. Non-life insurancecompanies have been paying out huge sums in claims for losses causedby these natural disasters, as a result of which the balance of receipts anddisbursements for fire insurance has deteriorated significantly. In addition,
while non-life insurance companies have been building up catastrophic loss
reserves in anticipation of the occurrence of massive losses in the future, thebalance of these reserves is declining due to the high frequency of natural
disasters to give rise to a serious management issue.

(14) Threat of cyber risks
Since the turn of the century, the frequency with which the Internet isused in business and the personal lives of people has increased significantly
to become an inseparable part of the fabric of social life. Moreover, therecent spread of COVID-19 has led to the promotion of the use of theInternet at many companies, such that meetings are now being conducted
online, internal decisions previously made on a paper basis are now being
made through apps, and goods are now being purchased via e-commercesites. Amid these dramatic changes in the environment, cybercrimes became
increasingly sophisticated and many individuals and companies came tobe victimized. Cybercrimes come in an array of different types, including
email fraud, the theft of financial data, and malware and ransomware attacks.
Fraudulent emails in the past used to be easily recognizable at a glance.
These days, however, cyberattacks – such as those involving the productionof fake websites that are virtually indistinguishable from a real e-commercesite – have become so sophisticated that you cannot completely prevent themeven if you understand what they are on an intellectual level.
In order to prevent cyber risks, companies need to build proprietary104

4 The current environment in which the insurance industry operates

systems to defend themselves. Japan is lagging behind other countries interms of the implementation of cybersecurity measures and there is also ashortage of cybersecurity professionals in this country. According to the 2017
Actual Condition Survey on Corporate CISOs and CSIRTs as released by the
Information-technology Promotion Agency, companies that have a special
section (person) in charge of a system for dealing with information security
measures accounted for no more than 45.2% of all companies in Japan andthere was no section dealing with such matters in over 15% of all cases. It
is believed that information security measures will continue to constitute aserious management issue.
In response to the expansion of damage caused by such cyber risks,
non-life insurance companies proactively sell insurance to compensate fordamage caused by cyber risks. These products offer a wide range of features,
including compensation for liability for damage in the event of a leakage ofcustomer information, compensation for the costs of dealing with different
types of incidents, and compensation for a loss of profits and sales of theseproducts are expected to continue growing in the future. While the market
for cybersecurity insurance in Japan is still small, it has become a major
market in the United States and is thus expected to also grow in Japan. It
goes without saying that this kind of insurance would be insufficient if it
only provided insurance functions in terms of compensation for the different
costs that are incurred in the wake of an incident. Since consulting services
for building a sufficient security system also need to be given to corporateclients, this is a type of insurance product that truly tests the comprehensive
capabilities of non-life insurance companies.

(15) International capital controls
In Japan, the concept of a solvency margin ratio was introduced when the
Insurance Business Act was amended in 1996. This is an indicator of thesoundness of an insurance company and works by measuring the “extent towhich an insurance company has enough capacity to pay for risks that exceed105

normal expectations”. Generally speaking, the accounting for an insurancecompany is complicated, such that it is difficult to ascertain the soundness ofthe company just by looking at its financial statements. The solvency margin
ratio, however, is converted into a simple figure like 400% or 600% that canbe easily understood as an indicator even by clients.
Incidentally, a healthy portion of liabilities for an insurance company
consists of the underwriting reserves that are set aside in anticipation of
paying claims and other amounts in the future. The method by which thesereserves are calculated uses the so-called “lock-in method”, such that figures
are not reassessed at fair value each time accounts are settled or each year.
Therefore, underwriting reserves for an insurance policy with a long term of
insurance for which a previous high expected rate of interest has been set will
be undervalued in the current low interest rate environment. For example, let
us say that the expected interest rate for an underwriting reserve corresponding
to an insurance policy sold in the 1990s was 5%. Since calculations for thesettlement of accounts today would still be based on an expected interest
rate of 5%, the amount of the underwriting reserve would be far less than
the amount that would be calculated at the lower expected interest ratethat is currently in effect. Of course, this should not be that big of a deal
if an insurance company purchases public bonds whose duration matches
that of the insurance policy in question at the time the insurance contract isconcluded. The term of insurance under a life insurance policy, however, istypically long enough that there are few public bonds in circulation that canbe matched with such insurance policies as a whole-life insurance policy.
Some of you may have read a recent article that described how life insurancecompanies jumped at the chance to purchase fifty-year bonds issued by amajor corporation. The common approach is therefore to buy public bonds
circulating in the market and switching to other public bonds at some point
in time. Nevertheless, as concerns the fact that interest rates have been
declining over a long period of time, it has become exceedingly difficult
to maintain high yields in line with insurance policies that correspond to106

4 The current environment in which the insurance industry operates

the high expected interest rates of the past. Thus, the interest rate risk tolife insurance companies selling insurance policies with ultra-long terms of
insurance has long been recognized as an important issue.
It is under these circumstances that financial authorities the world over havecontinued to study the introduction of new capital regulations. In responseto the adoption of international capital standards for insurance to take effectbeginning in 2025 at an annual meeting of the International Association of
Insurance Supervisors (IAIS) held in November 2019, the Financial Services
Agency in Japan decided to follow suit. Under the new standards that wereintroduced accordingly, the solvency margin ratio is to be calculated onan economic value basis. In other words, both assets and liabilities are to
be assessed at market value in calculating the solvency margin ratio. With
respect to insurance liabilities in particular, mortality rates and yields areto be calculated through the use of current values. Thus, it is expected thatlife insurance companies that hold huge volumes of insurance policies
corresponding to high expected interest rates that were sold in the past will
become mired in a difficult situation. Of course, these companies are notrequired at this moment to revise all accounts in their financial statements tomarket value; the change is expected to only affect the calculation of solvency
margin ratios. While companies often used to set relatively high expectedinterest rates for indemnifying products from a competitive standpoint, thissituation will compel them to set more conservative expected interest rates
going forward.

107

108

5 Impact of COVID-19

5Impact of COVID-19

The growing spread of COVID-19, which began to run rampant in 2020,
continues to cause serious damage to Japan and shows no sign of coming toan end yet. In this section, I would like to explore the impact that COVID-19
has had on the social environment as well as the impact on the insurance
industry.

(1) Further decline in the birthrate
Japan has always been a unique society in terms of its very low birthrate
and aging population. While its population has been shrinking in recent
years due to its low birthrate, the spread of COVID-19 infections caused thebirthrate to decline even further. According to the Vital Statistics (Ministry of
Health, Labour and Welfare; December 2020), 872,683 births were recorded
in 2020, which represented 25,917 fewer births over the preceding year andthe lowest number of births ever recorded in the statistical history of Japan.
This was due not just to the large number of people who avoided going tohospitals out of a sense that the risk of going to a hospital for childbirth was
too high but also to the pervasive pessimism about the future of Japan that
had taken root. When you actually speak with young people, you realize that
there are very few people who imagine a positive future for Japan. Thus, I
believe that the birthrate in Japan is very highly likely to remain low for theforeseeable future. While the population of young people will consequently
shrink, advancements in medical technology will continue to extend life
expectancy among the elderly, which means that Japan’s population pyramid
is expected to become even more distorted.
As a result, Japanese companies will not just employ foreign nationals but
109also look to the elderly to secure workers. For workers as well, it is generally
understood that it is difficult to lead a life in old age sufficiently with only
proceeds from a public pension; this issue is referred to as the so-called“20-million-yen-for-old-age problem”. Accordingly, there are many people
who wish to continue working even into their golden years. On this note,
Japan has also been referred to unfavourably as a “retirement-less society”.
Against such a societal backdrop, the government revised the Act Concerning
the Stabilization of the Employment of Older Persons and the Employment
Insurance Act. Beginning this April, companies will be required to raise theage of retirement to seventy years, albeit through provisions that require thatan effort to that end be made. It is said that these provisions will eventually
be made obligatory. In other words, the more the average life expectancy forJapanese people increases, the more that moves to extend the retirement age
will be accelerated.
In addition, the insurance industry has been seeing more and moreinsurance companies these days promoting new initiatives that primarily
target elderly persons for sales.

(2) Increase in the burden placed on medical institutions
The impact of COVID-19 gave rise to a shortage of hospital beds at many
medical institutions and caused the treatment of conditions that did notneed to be carried out urgently to be deferred. The working environment
for healthcare workers also continues to be severe and shows no signs ofimprovement. This state of affairs might continue not until COVID-19 isbrought under control but until it is completely eliminated. In this context,
the shortening of hospital stays could be accelerated beyond what we haveseen to date, in part to help keep increases in national healthcare costs undercontrol.
It was also decided that the percentage of medical costs to be paid on an
out-of-pocket basis by latter-stage elderly persons (seventy-five years of age
or older) whose income is at least a certain amount would be increased from110

5 Impact of COVID-19

ten percent to twenty percent in the fall of 2022. The fact that this percentage
was raised despite careful deliberations amidst the reluctance of the elderly
to receive medical treatment due to the impact of COVID-19 appears toindicate this situation was truly unavoidable from a financial standpoint. It issaid that approximately 3.70 million people will be affected by this change.
In order to maintain the national government’s healthcare finances at a soundlevel into the future, I believe that it is highly possible that the percentage of
medical costs to be paid on an out-of-pocket basis will increase further.
Against this backdrop, expectations for medical insurance sold by privatesector insurance companies are rising and such insurance will likely continue
to make proactive inroads into the market as something to complement the
public medical insurance system.

(3) Economic stagnation
Due to the spread of COVID-19 infections, many companies – primarily
those operating in the service sector, such as restaurants and tourism
operators – suffered losses. As a result, the number of unemployed persons
grew significantly as shown in Figure 15.

NovemberJanuary 2021

September

May

July

March

NovemberJanuary 2020

September

May

July

March

NovemberJanuary 2019

September

May

July

March

NovemberJanuary 2018

September

May

July

March

X 10,000 persons
50
45
40
35
30
25
20
15
10
5
0

January 2017

Figure 15 Number of completely unemployed persons due toemployer or business reasons (original figures)

Source: Labor Force Survey (Basic Count), Statistics Bureau, Ministry of Internal Affairs and Communications

Of course, jobs could come back if COVID-19 were to be completely
111eliminated. However, it is hard to believe that economic activities could
be immediately restored to normal levels. Moreover, tax increases in the
future are unavoidable, such that it is undeniably possible that the Japanese
economy will decline further irrespective of whether or not COVID-19
were to disappear. Indeed, the Japanese economy failed to grow during theperiod of twenty lost years after the collapse of the bubble economy. Thesedays, only a few companies that are internationally competitive remain. Of
course, some companies grew rapidly upon seeing the spread of COVID-19
infections as a business opportunity and could yet become international
companies in the future.
The impact on the insurance industry will likely consist of greater pricecompetition in terms of premiums than before for all sorts of insurance
products due to client demand. Amid clamoring over the disintegration of
the practice of lifetime employment, it is expected that demand for options
to deal with the risk of disability will increase due to uncertainty regarding
future employment. In addition, non-life insurance companies that cancommercialize new risks that arise due to changes in the social environment
are able to see business opportunities in present circumstances by precisely
ascertaining the business risks facing companies that are rapidly growing
thanks to COVID-19 and developing and providing products that meet theneeds of these companies.

(4) Continuation of the low interest rate environment
Tax revenues dropped due to COVID-19 and caused government-issued
bonds to more than triple in terms of amount in fiscal year 2020 over thepreceding year to reach 112,553.9 billion yen. As the economy deteriorates, it
is hard to believe that the Bank of Japan might change its interest rate policy
any time soon, such that Japan’s low-interest rate environment will probably
stay intact for the time being. In addition, interest rates in the United States,
which to date have been at a relatively higher level than interest rates inJapan, were temporarily lowered as the result of a quantitative easing policy1125 Impact of COVID-19

whereby the Federal Reserve Board (FRB) lowered the policy rate to almost
zero percent in response to the impact of COVID-19 but have since been on
an upward swing.
At the same time, the stock market is doing well and is currently in a
holding pattern at a very high level despite a substantial fall in the Nikkei
Stock Average in March 2020. Some people might assert that we are in a
bubble that will soon burst while others might argue that we are not in a
bubble, that stocks are appropriately priced right now, and that stock prices
will continue to be maintained at a high level once COVID-19 comes to an
end. Since I am not an expert on the economy, I will avoid saying anything
about future trends in interest rates or stocks, but certain conclusions may
have already been reached by the time this book is published. This economic
environment has an exceedingly large impact on insurance companies andproducts and is closely tied to the management strategies of insurancecompanies.

(5) Awareness of social distancing and the rapid transition to a
net-based society
Before COVID-19, the entire world was connected. Global interactions
flourished and distances among people around the world were shrinking.
The spread of COVID-19 infections, however, gave rise to the term social
distancing and utterly transformed the way we behave. We put greater
distance between us and non-family members and actively sought to avoid
contact with strangers. As this way of living has been continuing for morethan a year, I believe that social distancing has embedded itself deep into
our psyche. In addition, many companies pursued measures to bring theirinfrastructure onto the Internet in order to allow their employees to workfrom home, as a result of which their business models themselves became
transformed and corporate activities were required to change substantially.
However, I believe that it is more accurate to say that COVID-19 bolsteredprevious efforts, however passive they may have been, to shift to the Internet
113

than it is to say that COVID-19 caused companies to change course in a new
direction. Even if COVID-19 eventually disappears, social distancing as apractice will probably remain embedded in our psyche and it is unlikely thatthe online business models of companies will revert back to what they werepreviously.
In addition, online selling has come to account for a very high percentage
of all sales as a sales channel in the insurance industry. As there are many
people who have learned to examine and purchase insurance products on
their own via the Internet, I believe that online selling has become a sales
channel that will remain highly promising even after COVID-19 comes toan end.
Figure 16 Percentage of persons wishing to purchase insurance who indicated thatthey wish to do so via the Internet and percentage of persons who
actually purchased insurance recently (private-sector insurance) via the Internet
Percentage of persons wishing to purchase insurance who indicated that they wish to
do so via the Internet%
14.0

Percentage of persons who actually purchased insurance recently(private-sector insurance) via the Internet

12.0
10.0
8.0

9.1

7.9

6.0
4.0

4.5
2.9

2.2

2.0
0.0

12.5

10.5

FY2009FY2012FY2015

3.3

FY2018Source: National Actual Condition Survey on Life Insurance (Japan Institute of Life Insurance)

Figure 16 outlines an analysis of the results of a national survey on actual
conditions related to life insurance as conducted by the Japan Institute of Life
Insurance. Even though “the number of persons who would like to purchaseinsurance via the Internet” is trending upwards, “the number of persons who
have actually purchased insurance via the Internet” remains flat. In otherwords, it is reasonable to believe that COVID-19 induced clients who may
have been thinking about purchasing insurance via the Internet and who were114

5 Impact of COVID-19

ultimately unable to take actual action towards that end to instead make it
happen by using the free time that was generated by working from home.

(6) Utilizing new technologies
As mentioned earlier, the use of FinTech has been proactively promoted
by numerous financial institutions in recent years and companies havebeen competing with one another in terms of the way FinTech is being
implemented. Many types of office work that has been carried out to dateby way of a labor-intensive approach are being replaced by AI, RPA, andother technological tools in an attempt to reduce the number of workers
that are employed. According to media reports, banks around the world
announced layoffs in excess of 85,000 workers in 2020. Many articles
have been written about Japanese mega-banks pursuing plans to reduce
their workforce through the use of technology. These developments are notjust part of a transient fad and will undoubtedly continue. More and morecompanies that operate call center departments, which have traditionallybeen manned by people, are introducing virtual agents to deal with customers
through AI chat bots based on the use of virtual characters brought to life
by computer graphics and animation. As mentioned earlier, automateddriving technologies for automobiles have evolved at a pace far greater than
expected as automotive manufacturers and IT manufacturers around theworld have also been competing with one another through investments ofhuge sums of money. It goes without saying that this has also been boosted
by consideration for SDGs, which entail environmental contributions madeby eliminating gasoline-powered vehicles and replacing them with electricvehicles (EV). While the development of drones is also rapidly accelerating
and their use in war zones is often covered in news stories, this is essentiallya technology that can be used for a broad range of applications, such as theprovision of support for victims in areas affected by a natural disaster or thedelivery of goods to underpopulated areas. The evolution of virtual reality(VR) is also ongoing. VR is a technology that allows users to experience115

settings and worlds created with a computer and that makes it possible toexperience virtual space by donning VR goggles or some other wearable
device. Originally used in the gaming industry, this technology is also being
increasingly used in business. I believe that online meetings will continue to
evolve and eventually become a technology to make it visually appear as if
people are participating in a meeting together without having to physicallygather in the same location. This will lead to a change in the conventional
approach to work, whereby people had to live in close enough proximity tothe office to be able to commute there, and is also expected to significantly
reduce the need to undertake time-consuming business trips.
With the spread of COVID-19 taking place amidst these developments inthe area of FinTech, insurance companies accelerated the pace with which they
were moving operational processes online. Once reforms begin, we should
see operational transformations based on the use of new technologies takeplace everywhere irrespective of what is happening in terms of COVID-19
infections.

(7) A greater need for indemnifying products
The spread of COVID-19 infections has caused an increase in the number ofcases in which indemnifying products are purchased by people who had been
confident enough about their health to choose to forgo purchasing insurance
but who have been seeing more and more people in their lives afflicted by
COVID-19. Among indemnifying products, there has been an especially large
increase in the number of people who have purchased medical insurance.
Since hospitalization or home care in response to a COVID-19 infection
can come to an end in as short a period of time as two weeks if the person
is asymptomatic or only mildly affected, many clients choose to purchase
medical insurance with a focus on lump-sum hospitalization paymentsthat can be received on a lump-sum basis irrespective of the length of stay.
Insurance companies themselves proactively advertise on website banners
and elsewhere online by emphasizing lump-sum hospitalization payments of,116

5 Impact of COVID-19

for example, 200,000 yen irrespective of the length of hospitalization.
Incidentally, there were far more deaths from COVID-19 in the UnitedStates than in Japan. As of September 2021, a very high rate of one death per
500 people had been reached in that country. Some news stories indicatedthat the number of life insurance subscribers had been increasing as a result.
Many young people had been purchasing life insurance online. If a newvariant were to arise to cause the number of deaths from COVID-19 to rise
sharply in Japan in the future, it is believed that the number of death insurance
subscribers would increase in Japan as well.

(8) Further decline in the number of traffic accidents
The fact that the evolution of driver assistance and automated driving
technologies in recent years has led to a continuous reduction in traffic
accidents since the turn of the century was mentioned earlier. Traffic accidents
have been decreasing even more since 2020, when COVID-19 infections
began to spread. The number of traffic accidents, persons injured in traffic
accidents, and fatalities caused by traffic accidents recorded in fiscal year
2020 declined by 19%, 20%, and 12%, respectively, on a year-on-year basis.
This is likely attributable to people voluntarily deciding to stay indoors tocombat the spread of COVID-19 infections and the corresponding reductionin the volume of traffic on public roads.
The actual loss rate for automobile insurance, which constitutes a current
revenue source for non-life insurance companies, is now better than ever andwas said to be sufficient to offset reductions in sales due to the increase in
COVID-19 infections. Of course, if the loss rate improves, the reference loss
cost rate declines. In addition, most automobile insurance plans have a termof insurance of one year. Since premiums for automobile insurance decline
in conjunction with reductions in the reference loss cost rate, the fact thathigh earnings this fiscal year will not necessarily mean that high earnings
will likewise be realized the following fiscal year is a source of concern for
management executives at non-life insurance companies.
117

118

6 The future of the insurance industry

6

The future of the insurance industry

The fact that the spread of COVID-19 infections caused developments inthe life insurance industry to accelerate is as I have described above. Let us
now explore how the future of the life insurance industry will unfold.
Let me begin by stating that the situation is not at all favorable for boththe life insurance industry and the non-life insurance industry. This isbecause, as I have explained earlier, the birthrate continues to decline andthe population continues to age as the Japanese economy remains mired in astate of stagnation, such that the Japanese population and market are highly
likely to shrink in the future. To make matters worse, since the low-interest
environment has continued to persist for many years, insurance companies
are finding it difficult to generate investment earnings and indemnifying
products are losing their appeal.
Amid these circumstances, the decision on the part of many major life
insurance companies and non-life insurance companies to make a foray into
foreign markets consisting primarily of countries with rising populations is
an exceedingly rational one. However, I do not believe that the situation isalways one in which we are compelled to abandon the domestic market herein Japan. If we take the right approach and make the right decisions, there is
probably plenty of room for growth.
Let me expound on this point on an industry-by-industry basis.
When it comes to the life insurance industry, you should expect to see,in simple terms, the size of the market for sales inevitably shrink as the
population decreases since life insurance products are intended to coverpeople. In addition, since the sales situation for savings-type products, a type119

of product in which the life insurance industry specializes, is difficult, there
does not seem at first glance to be a way forward for continued success.
However, if the population of elderly persons increases, the need for new
insurance products will also arise accordingly. For example, the market has
not become sufficiently mature in various areas in which growth can be
expected, including with respect to insurance to cover the insured person’s
own funeral expenses, insurance for persons who are already undergoingtreatments for a medical condition, insurance related to areas in which we can
expect to see an increase in the number of patients suffering from dementia
and other conditions, and insurance related to the risk of unemployment.
In other words, if we can develop groundbreaking insurance products
in line with changes to the social environment, it is definitely possible toincrease sales through an expansion of the market.
In contrast to the life insurance industry, the non-life insurance industry is
not as affected by the decline in the population since it broadly underwrites
losses stemming from accidental incidents. The payment rate for automobile
insurance, which accounts for a large proportion of sales, continues toimprove significantly; this state of affairs is likely to persist for the time
being. However, advancements in automated safe driving technologies willcertainly reduce the incidence of traffic accidents and cause the automobile
insurance market itself to shrink. The high frequency with which natural
disasters have occurred in recent years has continued to worsen the balanceof receipts and disbursements and the impact of global warming will surely
cause more of the same to occur in the future. Since accident insurance, likelife insurance, covers people, the size of the market will surely shrink in theyears to come. New types of insurance, however, could come to represent
future sources of earnings if new risks arising from the recent emergence ofan online society and new business models can be skillfully commercialized.
Allow me to explain each item in detail.

120

6 The future of the insurance industry(1) Markets and insurance productsa. Life insurance industry
The primary market for sales in the life insurance industry today is theindividual segment. Within this segment, the main targets of life insurancecompanies are potential clients in their twenties to forties; these companies
focus on pitching indemnifying products to these clients. This is because
these are the years in which milestone life events – such as finding a job,getting married, having children, and contracting adult diseases – occur tocause the need for life insurance to increase.
While modern life insurance products provide exceedingly complicatedforms of coverage, I believe that companies will be required to respond tosocietal demands brought about by worsening economic conditions andunemployment by offering insurance products that are simpler and thatcharge lower premium levels in the future. In other words, we are talking
about the following types of insurance products:(i) Death insurance
The desire for coverage to pay for family living expenses and childcare
costs in the event that one dies at a young age remains as powerful as
ever. Due to the worsening economic environment, however, it is expectedthat there will be more people who seek high amounts of coverage at low
premium levels. For this reason, it is conceivable that fixed-term insurance
products, such as term insurance and income protection insurance that offer
high amounts of coverage at low premium levels for a fixed term will grow interms of percentage of all sales to a greater extent than whole life insurance
for which high premiums are charged.
(ii) Medical insurance
In response to the trend towards shorter hospitalizations, medical insurance
that offers lump-sum payments not tied to the length of a hospital stay are121gaining in popularity rather than medical insurance that offers hospitalization
benefits tied to the length of a hospital stay. It is expected that this type of
medical insurance will remain popular given the ease with which it is easy
to understand even as hospital stays are expected to become even shorter inthe future. However, competition for developing medical insurance products
is extremely fierce among independent agents, such that there is the sensethat competition is merely one of specifications with an eye on independent
agents, thereby making these products into insurance products that cannot
be expected to be as highly profitable as they once were. Thus, simple pricecompetition with medical insurance will ultimately come to an end in thesame way that we once saw with automobile insurance and companies willthen compete based on the coverage they each offer their clients.
In addition, one approach to avoiding simple price competition is to offer
health promotion-type insurance. By providing added value to clients otherthan the payment of insurance money and benefits, an insurance company
can differentiate its products from the products of other companies.
(iii) Cancer insurance
Like medical insurance, cancer insurance has been undergoing intensecompetition for product development in recent years. Unsurprisingly, astrong aspect of this competition lies in the fact that it simply revolves around
specifications.
There is a conventional approach whereby cancer insurance is sold as acancer rider attached to medical insurance and an approach whereby cancer
insurance is sold on a standalone basis; the approach that is used depends oneach insurance company’s product strategy. With cancer now being called
a national disease of the Japanese people, there is no doubt that productdevelopment will be proactively pursued for both approaches. However,cancer is not an incurable disease. Presently, there are some specialists whobelieve that approximately sixty percent of cancer patients can be saved
thanks to advancements in medical technology.
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6 The future of the insurance industry

Moreover, medical technology to easily detect cancer at an early stage
through samples of blood or saliva is also being developed these days. For
this reason, cancer diagnostic benefits, which is highly popular as a coverage
option, will likely not survive within the current framework of coverage.
Certain measures could be taken, such as by limiting the cancers for whichcancer diagnostic benefits will be paid to a certain stage or above or by
setting different benefit amounts for each stage. Nevertheless, I believe thatthe primary focus will shift towards coverage for serious cancer treatments.
(iv) Disability insurance and income-protection insurance
As major insurance companies launched new products one after another inrecent years, the profile of insurance products for unemployment rose rapidly.
Opportunities to be showcased in special insurance features published inmagazines also increased. It is believed that this is because the system of
lifetime employment that supported the growth of Japanese companies in the
postwar years had come to an end, thereby making it difficult for employees
to entrust their future to the company for whom they worked and causing
individuals to become aware of the risk of reduced income that would comewith the loss of employment. Thus, the market for disability insurance canbe expected to grow in size and the competition for the development of
products related to this type of insurance among insurance companies will
likely become increasingly intense.
At the same time, the birthrate is declining and the population is aging
at an accelerating rate in Japan as mentioned earlier. According to the 2020
White Paper on Japan’s Aging Society (Cabinet Office), those aged sixty-fiveyears or older accounted for 28.4% of the population as of October 1, 2019;
this figure is expected to peak in around 2040. For this reason, insurancecompanies will continue to engage in the same approach to sales activities foryoung people and will proactively seek to sell protection products to elderly
persons, a segment that used to be targeted primarily for sales of savings-type
123

products only. Elderly persons can now live longer thanks to advancements inmedical technology and are increasingly expected to function as workers insociety, such that their working environment is expected to expand in scopein the future. However, as you get older, the increase in the risk of contracting
adult diseases and suffering from other types of illnesses and conditions
cannot be avoided. In other words, it is expected that the lineup of insurance
products for elderly persons who cannot enrol in a normal protection productbecause they are being treated for an existing condition will grow.
(v) Death insurance for elderly persons
Traditionally, death insurance for elderly persons has been sold forsuccession purposes and for the purpose of covering one’s own funeral
expenses.
It is against this backdrop that the demand for coverage for one’s own
funeral expenses has been increasing, in part due to the trend towards nuclear
families in Japanese society. For such elderly persons, it is often difficult
to pay high premium amounts, such that it is expected that death insurance
for elderly persons will primarily consist of simpler whole-life insurance
products and ultra-long-term insurance products in the future.
(vi) Medical insurance for elderly persons
When you get older, you often start to suffer from certain chronic conditions.
A market for medical insurance to which relaxed underwriting standards
apply that can be purchased even if you have chronic conditions has alreadybeen established and many insurance products for this market are alreadybeing sold. It is highly likely that this area will become a key battlegroundfor life insurance companies in the future and further competition for productdevelopment will probably unfold. The reduced payment period for benefits
found in medical insurance with relaxed underwriting standards in the past
no longer exists and there is competition to expand the scope of coverage andlower premiums. Thus, competition that is merely in terms of specifications124

6 The future of the insurance industry

will, as with normal medical insurance, come to an end and will shift tocompetition for the development of highly unique insurance products thatprovide generous coverage for dementia and other illnesses and conditions
specific to elderly persons. In addition, medical insurance for elderly persons
should be required to provide added value in addition to the payment ofbenefits, such as by providing supplementary services designed to stop the
progression of illnesses and conditions.
(vii) Disability insurance for elderly persons
At sales locations, there are more opportunities now to propose not justdeath insurance, medical insurance, and cancer insurance but also disability
income replacement insurance to clients in their thirties and forties. It is
expected that, with the increase in elderly workers, the number of clients
who formulate old-age life plans for which they assume that they will still
be working at the age of seventy or eighty years will rise. Accordingly, I
believe that it is highly likely that disability income replacement insurance
for elderly persons for which the underwriting standards have been relaxed
for clients in their fifties and beyond will be developed in the future.
(Viii) Dementia and long-term care insurance
In recent years, many life insurance companies have launched dementia
insurance, a type of insurance product that is garnering significant attention.
The context for this can be found in a startling report issued by the Ministry of
Health, Labour and Welfare, which states that there will be more than sevenmillion dementia sufferers in Japan by 2025 and that dementia will affectone in five elderly persons aged sixty-five years or older. While dementia
has long constituted a long-term care condition, long-term care insurance
is a type of insurance product that many insurance companies have had
difficulties selling to date. This is because clients in their thirties and forties
have a difficult time imagining themselves suffering from a long-term carecondition in the future. This is why some life insurance companies promote
125the selling of long-term care insurance by explicitly referring to dementia
as a term that more easily gets through to general consumers. The status
categories by level of long-term care required are required support 1 and 2
and required long-term care 1 to 5. In the past, the condition for the payment
of benefits under long-term care insurance was that the person in question
had to correspond to required long-term care 3 or 4 or above. However, there
are more insurance products available these days that also pay out benefits
for required support. Since the market is definitely expected to continue
growing, it is likely that many insurance products will be developed andlaunched on the market to give rise to fierce competition in terms of sales.
To this end, however, insurance companies will need to provide attractive
coverage and supplementary services to motivate younger clients to purchasesuch insurance.
(ix) Savings-type products
Savings-type products are commonly sold to elderly persons for the
purpose of diversifying risks for their retirement money and other funds
and primarily consisted of variable annuities before the bankruptcy ofLehman Brothers and has since then primarily consisted of foreign currencydenominated annuities. However, it is possible that life insurance companies
that will take on a more passive approach to selling foreign currencydenominated annuities will emerge in response to the rapid increase in thenumber of complaints lodged in recent years and the fact that foreign interest
rates, which are higher than interest rates in Japan, are being lowered as amatter of policy in response to the spread of COVID-19 infections and will
also be subject to standard policy reserves in April 2022.
Against this backdrop, some life insurance companies have begun to focus
on re-selling variable annuities, in part because the stock market is roaring.
As long as the stock market is doing well in a low interest rate environment,
conditions for variable annuities are favorable and active sales are expected
to continue. Life insurance companies focusing on selling savings-type
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6 The future of the insurance industry

products are nevertheless required to flexibly respond as they operate in an
investment environment that is in a state of flux.
Incidentally, while foreign currency-denominated annuities and variableannuities were originally insurance products for comparatively wealthyclients, there are many people who are insecure about their old-age life plans,
which means that you can expect to see demand for savings-type products fortypical clients to increase in the future. This is because, since old-age funds
could be depleted if you were to live to a very old age, greater longevity
is regarded by some as a risk. Thus, it is possible that demand for tontines
will rise in the future. Tontines are currently being sold by a number oflife insurance companies. These are savings-type insurance products withconsiderable potential given that they can generate a certain amount of yieldeven under low interest rates by harnessing a lower return on death or a lower
surrender value as a source of funds. If attractive tontines are sold in the
future, they may very well grow into a substantial market.
So far we explained the personal market, from here we will talk about
the group market in the life insurance industry. There are several types ofgroup markets, a typical example of which is life insurance for company
employees. In particular, the type of group insurance that can be voluntarily
enrolled in with premiums to be assumed by employees is popular since agroup discount that makes it more affordable than individual policies applies.
This type of product will likely continue to be proactively sold in companies
as part of the package of benefits these companies offer to employees.
On the contrary, there are two other types of insurance products for thegroup market that have garnered people’s attention. The first is group insurance
for all employees of a company. Premiums are fully paid by the company.
Against the backdrop of labor shortages in companies, health management –which entails the strategic implementation of employees’ health management
and health promotion initiatives from a managerial perspective – has attracted127

significant attention as an effective way to increase the rate of employee
retention. Many companies have already introduced comprehensive welfare
group term insurance. By introducing group unemployment insurance for theentire workforce and other such insurance products as part of a company’s
benefits program, the attractiveness of the company can be considerablyenhanced. For example, in the case of group disability insurance, a certain
percentage of salary can be guaranteed until retirement if an employee
can no longer work due to an injury or illness. This increases loyalty on
the part of employees towards the company and allows employees to workwith peace of mind. The introduction of such a benefits program can help
prevent employees from quitting and lead to the recruitment of fresh, talented
personnel. In addition, since all employees are covered, it is less susceptible
to moral risks and adverse selection risks than with policies purchased byindividuals, which means that a client can be provided with coverage thata life insurance company is typically not really eager to provide, such as
coverage for infertility treatments and coverage for mental illness.
The second is group credit life insurance for persons who have takenout home mortgages. As an insurance product that is recommended by thebank when you take out a home mortgage, this type of insurance has beenproactively sold by banks since around 1955 as an insurance product that isdesigned to pay off the outstanding balance of a home mortgage in the eventthat the insured person dies in the course of making mortgage payments. Since
home mortgages represent an important financial instrument that generates
valuable revenue for banks, group credit life insurance will no doubt continue
to be sold. Group credit life insurance used to be an insurance product that
only covered death or severe disabilities but now encompasses more andmore options, including insurance products that pay out benefits equivalent
to the outstanding balance of a home mortgage in such cases as when theinsured develops cancer or becomes afflicted with any of the three majordiseases (cancer, cerebral stroke, and acute myocardial infarction). For banks128

6 The future of the insurance industry

as well, the expansion of the scope of coverage is advantageous for obtaining
additional interest or differentiating their loans from the home mortgages
offered by other banks. Thus, we can expect to see revenue continue toincrease through the introduction of new products in this category.
b. Non-life insurance industry
Next, I would like to explore the market and insurance products in the nonlife insurance industry. Unlike the life insurance industry in which the sector
catering to individuals is strong, the focus of sales in the non-life insurance
industry as a whole appears to be the corporate sector. The reasons for thisare as follows:• Unlike life insurance that exists solely to cover people in terms of life anddeath and in terms of dealing with an injury or illness, non-life insurance
can underwrite risks related to all sorts of chance accidents other thanthe life or death of a person. Thus, the commercialization and sellingof insurance for risks arising in connection with corporate activities areinevitably made the focus of non-life insurance.
•Whereas life insurance companies build solid relationships withindividual clients through their own sales representatives, non-life
insurance companies have historically engaged in transactions throughsoliciting agencies for the most part. These soliciting agencies are closely
linked to corporate activities, including with respect to the institutional
agencies of corporate groups and dealer agencies. While non-life
insurance companies underwrite insurance policies primarily providing
automobile insurance and fire insurance coverage for many individual
clients, the bulk of these policies are sold through corporate partners.
For this reason, non-life insurance companies do not have many direct
relationships with individual clients.
It goes without saying that this is not necessarily always the case given that129

some non-life insurance companies have their own exclusive professional
agencies and that direct non-life insurance companies sometime sell directly
to clients via online channels without going through soliciting agencies.
However, the non-life insurance industry as a whole does not have a strong
influence on individual clients. In light of the fact that the Japanese populationis shrinking, it would be difficult to have high expectations of the individual
sector going forward. As expected, the corporate sector will likely continue
to be highly promising for the non-life insurance industry.
Non-life insurance companies have long endeavored to sufficiently
strengthen their relationships with large companies. It has been pointed out
for some time now, however, that they tend to avoid proactively working
to make proposals to small to medium-sized companies that employ nomore than 500 employees, in part due to considerations of efficiency when it
comes to sales activities. Yet, when you realize that the size of a workforce
increasingly does not reflect a company’s strength, as demonstrated by the
recent rise of FinTech ventures, you might begin to believe that it will also
be important to focus on sales activities directed at small to medium-sizedcompanies, in part as a way of making up-front investments.
Figure 17 Net premiums written (fiscal year 2019)
Motor vehicle liability979.1 billion yen

Fire1,280.7 billion yen

Marine197.0 billion yen
Transport
65.1 billion yen

New types
1,303.5 billion yen

Personal injury
675.0 billion yen

Automobile
4,108.9 billion yen

Source: Produced by the author based on materials released by the General Insurance Association of Japan130

6 The future of the insurance industry

Figure 17 shows net premiums written by type of insurance in the non-life
insurance industry today. I would like to describe what we expect to see forthe types of insurance that account for bigger slices of the pie.
(1) Automobile-related insurance (automobile insurance + motor vehicle
liability insurance)
Automobile-related insurance accounts for approximately sixty percent of
the net premiums written for all non-life insurance and constitutes a mainstay
product for many non-life insurance companies. As mentioned earlier, theevolution of driver assistance and automated driving technologies has led to asignificant reduction in traffic accidents in recent years. In addition, revisions
to the non-fleet bonus-malus system for automobile insurance that were
implemented in 2012 led to the abolishment of the grade-deferred accident
system, the application of an accident coefficient for three years following
an accident, and higher premiums than for the same grade to which the same
coefficient is not applied. These changes made it more difficult to make aclaim in the event of a minor accident, gave rise to a dramatic improvementin the actual loss rate for automobile insurance, and significantly contributed
to the profits of modern non-life insurance companies. While this favorable
picture will no doubt persist for the time being, traffic accidents will become
virtually non-existent someday if driver assistance technologies continue to
evolve, thereby diminishing the raison d’être of automobile insurance. Of
course, quite a lot of time will be needed to get to that point, such that today’s
automobile insurance will not become superfluous overnight. Nevertheless,
it is inevitable that automobile insurance will someday lose its position asa revenue source in the non-life insurance industry. Accordingly, non-life
insurance companies will be forced to look for new sources of revenue.
(2) Fire insurance
Fire insurance has for a long time reigned as a mainstay product second
only to automobile-related insurance in the non-life insurance industry.
131As mentioned earlier, however, profitability has worsened due to the highincidence of major natural disasters in recent years. Experts predict that natural
disasters will continue to occur frequently due to global warming, such that itis difficult to expect that fire insurance will remain an insurance product thatgenerates earnings. Since fire insurance is an insurance product described
as being of an especially high public nature, it is socially unconscionable toraise premiums all at once. Recently, however, the General Insurance Rating
Organization of Japan has been raising the reference loss cost rate in a shortspan of time. Non-life insurance companies have also raised premiums
accordingly. While premiums will continue to be intermittently raised andwhile catastrophic loss reserves that have been depleted need to be restored
and stabilized at an appropriate level of receipts and disbursements, theroad ahead will be difficult to navigate. In addition, the current maximum
term of insurance for fire insurance is slated to be reduced from ten years tofive years in 2022. This too is a reflection of the inability to predict futurenatural disaster risks. For now, each large-scale natural disaster that occurs
should continue to cause one’s sense of security with respect to the loss rate
to fluctuate up and down. If you were to seek to transform fire insurance into
an insurance product that generates a long-term stable level of receipts anddisbursements, it would be necessary to make fundamental product revisions,such as by expanding the scope of covered risks and substantially raisingpremium levels to dilute the share of natural disaster risks and by setting
payment limits and deductibles for the provision of compensation for natural
disasters. This is, however, not a very realistic option from a sales standpoint.
(3) Accident insurance
For accident insurance, a reference loss cost rate is calculated by theGeneral Insurance Rating Organization of Japan as it is for automobile
insurance and fire insurance. Accident insurance is a core item in the nonlife insurance industry and has a long history. Most sales take the form ofgroup policies in the context of benefit programs operated by companies.
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6 The future of the insurance industry

As premiums are set based on group discounts according to the number of
insured persons covered and on result ratings according to the actual loss
rate, a certain level of premiums can be secured each year, but it is difficult
to expect at least a certain level of profit. Moreover, since it is expected thatmany companies will reduce the number of employees in their workforce inline with the greater adoption of information technology, it would be difficult
to make accident insurance an insurance product that could generate revenue
for non-life insurance companies in the future.
(4) New types of insurance
New types of insurance is a collective term for non-life insurance otherthan automobile-related insurance, fire insurance, accident insurance, marine
insurance, and transport insurance. It includes a huge number of specialized
insurance products, such as theft insurance, construction work insurance,
liability insurance, pet insurance, and credit insurance. The risks covered by
new types of insurance are more unstable than what is covered by automobile
insurance, fire insurance, and accident insurance. Some insurance products
pay out insurance money exceeding 10 billion yen per accident. For such an
insurance product, there is the possibility that a huge claims payment will
be made. At the same time, there are also years when no accident will occur.
An accurate analysis of receipts and disbursements cannot be undertaken
without observing patterns over a long period of time.
Traditionally, insurance for companies was centered on insurance products
for property managed or controlled by the company, such as buildings,
plants, and vehicles. With the development of the Internet of Things (IoT)
in business, however, the amount of property managed or controlled bycompanies is gradually shrinking and the risks faced by companies arechanging to risks that are intangible. In fact, many non-life insurancecompanies are proactively acting to propose insurance products that covercyber risks affecting companies. The spread of COVID-19 infections has
also increased interest in the risks to business continuity. In the future, it133

is hoped that insurance products to cover new risks in connection withcorporate activities will be developed. Furthermore, the commercializationof insurance products designed to cover such new risks could give rise to
future sources of revenue for the non-life insurance industry.
When I speak to people in the non-life insurance industry, I sometimes
hear negative comments about the future of the non-life insurance industry.
(“Automobile insurance will eventually go extinct and fire insurance too
continues to become less and less profitable, such that the future of the nonlife insurance industry is dark indeed.”) However, the fact that insurance
products designed to cover all manner of accidental risks unrelated to thelife and death of a person can be commercialized is a huge strength of nonlife insurance, such that a situation that at first glance looks to be dire can beturned into an opportunity. At a time when global businesses are undergoingmassive changes, the ability to correctly ascertain new risks and develop new
products to respond to those risks is, I believe, the way forward. For example,
just as product liability insurance emerged when the Product Liability Act(PL Act) was enacted in July 1995 and insurance for the protection of
personal information emerged when the Act on the Protection of Personal
Information was enacted in May 2003, changes in the world constitute someof the biggest business opportunities for non-life insurance companies.

(2) Sales channels and solicitation management
First, I would like to describe sales channels from the standpoint of thelife insurance industry and the standpoint of the non-life insurance industry.
a. Life insurance industry
The biggest sales channel in the life insurance industry is made up of sales
representatives. The foundation of the life insurance industry in postwar
Japan was built by people known colloquially as “life insurance ladies”. In
the past, they could visit the workplaces and cafeterias of companies both134

6 The future of the insurance industry

large and small and sell life insurance policies. In addition, many of them not
only provided advice on insurance but also acted as advisors concerning allsorts of matters affecting clients, including work, marriage, and childbirth,and as community organizers. These days, however, the personal informationof employees is subject to stricter standards of management and compliancerequirements are imposed by companies. These changes have made it moredifficult to access workplaces and resulted in fewer opportunities to comeinto contact with company employees. Thus, it is said that this sales channel
is highly likely to decline in the future. At a time when more than a decade
has passed since Internet-only life insurance companies first emerged on thescene, however, we see that sales representatives still wield enormous
influence. To a significant extent, this is because, for a life insurance company
that employs sales representatives, sales representatives are naturally highachievers who help build up massive assets by securing many policies andare solidly backed by their companies. But that is not all. Among insurance
products, life insurance in particular is not a product that clients are actively
motivated to purchase. It is especially noteworthy that clients have a passive
reason to purchase life insurance in a majority of cases. Unless this kind of
insurance is recommended by someone else, no client would autonomously
analyze his or her own future risks and happily purchase life insurance on thebasis of his or her findings. Most clients first become aware of the need topurchase life insurance when something tragic or unfortunate happens totheir own family, an acquaintance, a colleague, or someone famous. At sucha time, a client will receive explanations and advice on his or her own life
plan and family finances several times from insurance solicitors before
deciding to purchase insurance. As an easy-to-understand example of thisphenomenon, think about the many clients who became strongly aware of therisk of becoming infected by COVID-19 during the height of the pandemic
and then chose to purchase medical insurance as a result. Purchasing an
insurance product is a completely different experience from purchasing, outof curiosity, an amusing item that you just so happened to discover in the135course of casually browsing an e-commerce site. Another reason is the lowlevel of financial literacy among Japanese people. In Japan, there are probably
very few people who can say that they learned anything about financial
matters back when they were in school. A client with a low level of literacy
about insurance can purchase life insurance with peace of mind by obtaining
careful explanations from an insurance solicitor. Of course, there have also
been many, many cases in which someone purchases life insurance on therecommendation of an acquaintance at or through work due to the characterand commercial customs of Japanese people; this is unlikely to easily change
anytime soon. Nevertheless, life insurance is regarded as the second-mostexpensive purchase in a lifetime after a home. For someone wishing to savemoney, reducing the amount spent on premiums paid monthly is a quick andeasy solution. As more and more people work from home and the economy
is expected to take a turn for the worst, there is no doubt that an increasing
number of clients wish to understand the pertinent risks and purchaseacceptable life insurance products on their own. Thus, insurance shops andother independent agencies as well as Internet-based direct sales will likely
Figure 18 Channels through which clients tend to enroll in insurance byage of the head of the household%

Age of head of household
Sales representative for a life insurance company
Post office counter or sales representative
Insurance agency counter or sales representative

Via the Internet

Source: FY2018 National Actual Condition Survey on Life Insurance (Japan Institute of Life Insurance)

136

90 or older

85-89

80-84

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

29 or younger

40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0

6 The future of the insurance industry

continue to secure a growing share of the market. Figure 18 shows the market
share attributed to the channels through which clients wish to enroll in life
insurance by age bracket.
The fact that many young people want to purchase life insurance throughan insurance agency or the Internet and the fact that many elderly persons
wish to purchase life insurance from a post office are in line with what we
intuitively perceive to be true. At the same time, the fact that people of allages want to enrol in a life insurance policy through a sales representative
also supports the inferences that can be drawn.
b. Non-life insurance industry
Next, let us explore sales channels in the non-life insurance industry.
Insurance agencies are a traditional mainstay channel in the non-life
insurance industry. Among these agencies, institutional agencies throughwhich corporate group affiliates operate an insurance business are especiallyinfluential. A company will purchase many non-life insurance policies tocover the business risks to which it is exposed and pay a substantial amountin premiums every year. At the end of the 1990s, the creation of captive
insurers as a risk-financing method became a hop topic that was exploredby many major companies. As shown in Figure 19, companies set up
insurance subsidiaries in foreign jurisdictions with a properly developed
legal system to underwrite their own insurance in an attempt to reduce costs
but ultimately failed due to the time and costs involved. Many companies
have also traditionally been concluding non-life insurance contracts throughaffiliated institutional agencies. This should remain the case going forward
in order to reduce total expenditures for the corporate group as a whole. I am
sometimes asked by people outside the insurance industry to explain why
major companies continue to pay large sums of non-life insurance premiums
rather than insure themselves. It is true that, in the long run, large companies
in particular may end up with a simple balance of receipts and disbursements137

Figure 19 How captive insurance works

Captive insurer(company’s
insurance
subsidiary)

Source: Produced by the authorthat is negative since the premiums they pay annually include contingency
loading amounts and insurance company profits. For a company, however,it makes sense to equalize its annual balance of receipts and disbursements
through payments of non-life insurance premiums in order to avoid large
fluctuations in its settlement of accounts from year to year due to theincurrence of extraordinary losses in a single year. In addition, a company
needs to accumulate its own taxable reserves if it wants to insure itself. In
contrast, non-life insurance premiums can be posted as expenses, which
gives a company tax advantages. What I have described up to this point are
general reasons to explain why a company might choose to go with nonlife insurance. Just as important, however, is the support provided by a nonlife insurance company to its client companies in their core operations. For
example, if you are a dealer agency, the employees of a non-life insurancecompany might help you to procure an automobile on your behalf. When I
used to work as a sales employee for a non-life insurance company, I often
purchased the goods of clients out of my own pocket or helped acquaintancespurchase such goods. When I was in charge of the food industry, I remember
focusing on playing the role of an intermediary almost everyday for foodstuff138

6 The future of the insurance industry

that would be sold to colleagues and acquaintances. Thus, in the corporate
sector, it is not simply a matter of assessing the good and bad features of an
insurance product proposed by a non-life insurance company that determines
whether or not it will ultimately be purchased by a client. In other words,
from the perspective of sales channels, it is difficult for small to mediumsized and foreign-affiliated non-life insurance companies to make gamechanging moves in the non-life insurance industry.
Incidentally, as mentioned earlier, the financial services intermediarybusiness is emerging as a new sales channel for both the life insurance industry
and non-life insurance industry thanks to legislation on the intermediationof financial services. This law will come into force in November 2021 toallow intermediaries for financial services to actually start operating. Since
insurance products that can be subject to intermediation will be substantiallyrestricted in the beginning, this system may not be all that attractive to these
IT companies. However, many people these days use smart phone apps tomake use of many different services. While the number of insurance productsthat can be sold on an over-the-counter basis at banks when the ban was first
lifted was quite limited, this number rose over time. Likewise, if regulations
applicable to the financial services intermediary business are progressively
eased, we can probably expect to see this business do quite well someday as
a sales channel.
Next, allow me to discuss solicitation management. Attempts have been
made over and over again to enhance the sophistication of the solicitation
management system in the insurance industry through past amendments to
the Insurance Business Act and the enactment of the Insurance Act. In theindividual market, there is no doubt that the focus of insurance solicitation
going forward will gradually shift from face-to-face sales to an online
approach. In such an environment, many insurance solicitors have presently
begun making insurance proposals to clients online. In addition, many139

insurance companies have set up sections related to digital transformation(DX) to work on creating mechanisms for soliciting online and concluding
policies online and are endeavoring to integrate these mechanisms withexisting channels for face-to-face sales. Insurance solicitors can now be
efficiently trained thanks to their ability to participate in study sessions
mainly on an online and on-demand basis.
While it is great that everything has become convenient, we should beaware of the risks that lurk in the shadows. For example, the risk of identity
theft is a headache. When you are face to face with a client, it is easy to verify
his or her identity by checking a driver’s license or other such item. When you
are online, however, identification is rather difficult to verify. Furthermore, it
is no longer possible for an insurance solicitor to visually verify that a personis the client. A change in the solicitation method necessitates the building ofa new solicitation management system by an insurance company in line with
the new method.
In addition, we will need to be concerned about other matters if we are toproactively engage in the senior market as the population of elderly persons
increases. In the case of the life insurance industry, due attention needs to be
paid to ensure that incorrect or improper insurance solicitation activities are
avoided as set forth in the Guidelines Concerning Life Insurance Services
for the Elderly, which was produced by the Life Insurance Association ofJapan. For example, insurance policyholder proxy riders that a number oflife insurance companies have recently begun to sell are a means of having
procedures carried out by a representative designated in advance on behalf ofthe policyholder in the event that the policyholder can no longer express hisor her intent due to dementia or other such condition and are believed to beeffective in a super-aging society.
Finally, I wish to discuss solicitation commission in the context of theinsurance industry. Solicitation commission for insurance is generally notdisclosed at this point in time, a fact that is seen as one factor behind the1406 The future of the insurance industry

cultivation of distrust in the insurance industry. With respect to over-thecounter sales at banks, discussions on the disclosure of solicitation commission
for life insurance with market risks, such as variable annuities and foreign
currency-denominated insurance, occurred in 2016 from the standpoint of
establishing an equal footing with investment trusts. However, disclosure
was ultimately not made a statutory obligation. At most, many banks came todisclose solicitation commission on a voluntary basis beginning in October
2016. We have not heard much about the topic of the disclosure of solicitationcommission since then. However, it is also a fact that very high amounts ofsolicitation commission are still being offered to certain insurance agencies.
For this reason, the appropriateness of solicitation commission is being
carefully studied in the insurance industry.
It should also be noted that a new financial services intermediary businessthat is launched is subject to the obligation to disclose brokerage commission
amounts. Thus, it is expected that insurance companies will someday becompelled to fully disclose their solicitation commissions.

(3) Investments and management
Since insurance companies in principle only sell insurance products, theyshould ideally achieve an investment yield at or greater than the expectedinterest rate for each insurance policy. Since much of the assets of an
insurance company correspond to the policy reserves that are to be applied tothe payment of future claims, however, their management is subject to certain
restrictions given the fact that they are strongly required to be safe and of apublic nature. Of course, aiming to achieve a super-high yield by proactively
using junk bonds and derivatives is not permitted. While asset management
is also important even for non-life insurance companies, it is considered
to be especially a matter of life and death for any insurance company that
underwrites many policies with long terms of insurance. Thus, at a time wheninterest rates continue to be low, a wide range of asset management options
are selected, such as by ensuring high yields with foreign company bonds
141

and purchasing long-term government bonds.
By the way, the spread of COVID-19 infections caused the policy interest
rate to go down in many countries overseas and the stock market remains
mired in what some have called a bubble. In a persistent low interest rateenvironment, many are expecting attractive savings-type products to belaunched. In part because the appeal of yen-denominated fixed-amountsaving products is low, however, variable annuities are once again in the
spotlight these days. Amid ongoing conditions preventing us from getting aproper read on economic trends and the investment environment, savingstype products will probably be developed and sold as insurance products
selected based not on the type of insurance in question but on the investment
environment.
In the past, the act of holding shares in a listed company could expect togenerate positive operating effects since share prices would naturally riseand dividends could be received while riding a wave of rapid economic
growth and since the company, as a long-term stable shareholder of the given
company could also target controlled property and aim to sell insurance toemployees. However, institutional investors are now required to comply
with a code a conduct based on the Stewardship Code, which means thatthey need to engage in dialogue to promote the sustainable growth of thecompanies in which they make investments and increase medium- to longterm investment returns for clients and beneficiaries. In Japan, the Financial
Services Agency formulated the Japanese version of the Stewardship Codein 2014. Consequently, a company can, as in the past, be asked by a clientcompany to become a stable shareholder and hold shares for a commerciallyvalid reason but is no longer permitted to have any say in management. That
is when the surprising news that a major life insurance company would sellshares in a regional bank came to light.
While this decision was made based on the severity of the management
environment in which regional banks were operating, it is regarded as
possible that a set of international capital controls that would be introduced142

6 The future of the insurance industry

in 2025 was also a factor. The insurance company likely spent a considerable
amount of time agonizing over this decision upon weighing the pros and consof continuing to hold the shares of the regional bank in question.
ESG investments are strongly promoted these days. A careful investigationneeds to be conducted not just on the expected investment results but also
to determine what kind of company or organization the investment target
in question is in terms of the kinds of initiatives it has undertaken. While
Japan lags behind other countries when it comes to SDG-related initiatives,
insurance companies whose business is of a highly public nature and thatwield significant influence as institutional investors are being asked to
become proactively involved in ESG investments in the face of greatersocial pressure to promote SDGs. In fact, some insurance companies are now
investing in green bonds as well as children bonds issued by the International
Bank for Reconstruction and Development. In addition, many major
insurance companies have declared that they will apply ESG assessments totheir investment decision-making process. This is not just something that isbeing done as part of public relations activities carried out for the purposeof burnishing the reputation of insurance companies. We are now in a time
when any company that makes inappropriate investments will be culled fromthe international market. Since it is highly likely that a company with a high
ESG rating will be able to secure many business advantages, you can assume
that ESG investments will consequently generate very favorable investment
results.
This point should be even more important for a major insurance company
that is seeking to expand overseas.

(4) Operations
The memory of seeing many insurance companies deciding to adopt
a remote working system and shifting primarily to a work-from-homearrangement when COVID-19 infections were spreading is probably freshin your mind. More than a year later, insurance companies have been143

endeavoring to improve their internal operations, such that many insurancecompanies can be said to have made most of their operations possible tocarry out remotely. These days, you can even interact with the Financial
Services Agency online. In addition, the insurance industry has been moving
towards the adoption of a paper-less stance in part for the purpose of reducing
carbon dioxide emissions in line with the SDGs. It is now possible to submit
an application and signatures online without having to submit a physicalapplication form at the time you purchase insurance and developments arealso moving full-steam ahead towards the digital distribution of insurance
certificates, policy booklets, and policy conditions. No doubt, current
status updates sent annually to policyholders will also eventually be madeavailable online. However, since all sorts of interactions with clients will
mainly take place through email and since there will be fewer opportunities
to actually meet clients face-to-face, insurance companies should be awarethat it will become more difficult to verify a client’s current address. Sincemany clients fail to notify their insurance companies of a change in address
once they have purchased an insurance policy, insurance companies needto retain multiple elements for maintaining contact with clients. If a client’s
email address as obtained from the client at the time his or her policy waspurchased is incorrect, there is a risk that the client’s personal information
could be leaked to an outside party. For this reason, information pertaining
to clients needs to be handled strictly in terms of the ways it is obtained andmanaged.
Incidentally, the spread of COVID-19 infections helped to spur the
introduction of such new technologies as RPA and AI, which first began tobe adopted in the insurance industry several years ago. While the operationsof insurance companies as they relate to insurance products continue tobecome increasingly complex, as can be seen in the emergence of healthpromotion-type insurance and supplementary services based on the use of
new technologies, these products need to be managed with due care. It is not
the best analogy, but I remember the story of how a convenience store once144

6 The future of the insurance industry

introduced a slew of new services but ran into a host of problems because
the part-time workers hired by this store could not keep pace as far as theirunderstanding of these new services was concerned. Thus, it is importantthat a backup system to enable a manual recovery process to be carried out inthe event that a problem, however unlikely, occurs be established. While it isimportant to cut labor costs and streamline operations to help reduce business
expenses and lower premiums, a company will have gotten its priorities
wrong if they were to result in the inconveniencing of clients. In fact, I often
hear of cases in which problems persist when a newly introduced AI systemdoes not work especially well. Since insurance is a business that depends
on the trust and confidence of clients, a system that minimizes problems as
much as possible is required.

(5) Systems
The underlying systems in use by financial institutions are exceedingly
complex and the development of products incurs enormous costs andresources. Since vast amounts of data need to be continuously held for along period of time after a product is launched, existing programs are often
overwritten when a system is updated, which can then easily give rise toprogramming errors. News stories in which a major bank experienced
frequent system glitches that had a huge societal impact remain fresh in mymind.
In addition, Japan is home to many insurance companies. The underlying
systems in use at these companies come in many different shades and textures.
System development costs incurred for the development of products can vary
greatly depending on the underlying system in use and has been known to range
from hundreds of millions of yen to billions of yen. Moreover, depending on
the characteristics of a system utilized by an insurance company, the system
in question would be compatible with some insurance products but not others.
For example, let us assume that an insurance company utilizing an underlying
system that is compatible with indemnifying products wishes to develop and145sell variable annuities; this would require substantial system development
work to be carried out. This is because the characteristics of the system in
use make it difficult to incorporate the daily price fluctuation data needed fora variable annuity into in-force policy data. Thus, if you really must develop
an insurance product that is not very compatible with your own system, youwill be faced with a decision to either engage in development work that will
require considerable time and money to be expended or purchase a different
underlying system to be run in tandem with your current system. In either
case, an insurance company assumes a rather heavy burden when it comes todeveloping a system for product development purposes.
These days, insurance companies are promoting FinTech and making
insurance products more and more complex. In the future, we can expect tosee attractive insurance products developed by incorporating data on clients’
health condition, data on clients’ driving history, and other pertinent data
into the underlying systems. Thus, it is expected that system development
skills will become an important factor in determining the success or
failure of an insurance company. This is because an insurance company
with a low level of system development skills will be unable to develop
complex insurance products and unable to provide clients with attractive
supplementary services. In addition, more and more insurance companies
are introducing auxiliary systems – including systems to help insurance
solicitors calculate premiums and produce design documents, actuarial
systems to help finance departments settle accounts and analyze proceeds
and disbursements, and systems to help marketing departments analyze
Big Data and formulate future marketing strategies – to go along with theirunderlying systems. In many cases, these systems are linked with underlying
systems, such that a simple upgrading of an underlying system could affectthese peripheral systems. Thus, when upgrading a system, the company willneed to investigate the extent to which the entire company would be affected
and the seriousness of the applicable risks from a high-level perspective.
Moreover, when carrying out a system upgrade, many insurance companies
1466 The future of the insurance industry

use outside vendors. However, it would be ideal to see system upgrades
produced on an in-house basis in order to promote the accumulation of IT
know-how within the company.

(6) Supplementary services
Supplementary services have long been offered to policyholders as perks
attached to many insurance products. Many of these supplementary services
are provided for free to clients who purchase an insurance product and theircontents vary greatly from insurance company to insurance company. An
older well-known example can be found in the assistance services that are
attached to insurance for overseas travel. These services are wide-ranging
and include telephone consultations and emergency transfer support offered
when traveling abroad. Many different types of supplementary services,such as road-side service with automobile insurance and a second-opinion
service with medical insurance, exist these days but do not enjoy a highprofile among clients. I myself was once in charge of supplementary services
back when I was working for a non-life insurance company. As an individual
policyholder, I currently take advantage of supplementary services on a rather
active basis. For example, I have used a supplementary services attached toa fire insurance policy to contact someone and have the water pipes in myhome cleared of a blockage in the middle of the night on several occasions.
I imagine there are many clients who could have avoided spending money
unnecessarily and felt greater peace of mind if they had been more aware of
the existence of the supplementary services they were entitled to use.
Traditionally, supplementary services were typically provided over thephone. The promotion of FinTech gave rise to an environment in which
supplementary services that had never before been conceived of could
be developed. For example, supplementary services that do not rely on
telephone calls for their provision have emerged, such as a service attached
to automobile insurance that immediately contacts the insurance company
when an accident occurs and a service for receiving immediate advice from147

a doctor via a chat setup when a physical health issue arises. There arealso many supplementary services that are unrelated to the contents of theinsurance product to which they are attached, with some providing discounted
rates for stays at affiliated hotels for example. However, we should expect
to see supplementary services that are closely linked to the contents of theinsurance product to which they are attached prevail as mainstream options in
the future. The most common example of this are the supplementary services
attached to currently popular health promotion-type insurance policies. Yet,other examples consisting of supplementary services designed to prevent
diseases and the recurrence of diseases covered by insurance products that
selectively cover specific diseases are expected to continue increasing. While
such supplementary services are already attached to cancer insurance anddementia insurance, I believe that other supplementary services that focus on
adult diseases and diseases specific to women will also emerge in the future.
Furthermore, some non-life insurance companies are developing disasterprevention applications tied to the contents of their products.
Competition in terms of product development in the insurance industry is
only becoming more and more intense, such that insurance companies that
decide to no longer compete in terms of premium rates because they would
otherwise fall short of the break-even point will inevitably emerge. In thisenvironment, we should see an increase in cases in which the provision of
attractive supplementary services will encourage clients to select certain
insurance products. Many insurance companies have already establisheddeeper ties with many IT companies that have launched start-up ventures
and are busy working on developing attractive supplementary services. In
addition, advancements in technology could help revitalize the insurance
industry as supplementary services that we cannot even imagine at this time
emerge down the line.

(7) Human resources
In part because Japan is an aging society with a low birthrate, many148

6 The future of the insurance industry

companies have been frantically scrambling to find young workers in recent
years. With the labor market being a super-sellers’ market, young people withtalent continued to be highly sought after. The insurance industry was no
exception, such that young people who had just graduated from university or
who were recent graduates looking to change jobs were able to receive offersof employment from many insurance companies on the spot. The spread of
COVID-19, however, turned this picture on its head. Working from homebecame the main approach to work at many insurance companies and mostmeans of communications came to involve online channels. Consequently,
companies came to be deprived of the flexibility to train inexperienced
employees. This is probably one of the adverse effects of remote working
arrangements. On the other hand, there was growing demand for experienced
workers who could be put to work right away even if they may have beena bit older. In an increasing number of cases, companies who might havebeen happy to have young, talented workers join them prior to COVID-19
are being forced to turn down those who lack the requisite experience. Of
course, the situation should return to normal once COVID-19 is brought
under control, at which point many insurance companies will go back torecruiting primarily younger workers.
However, as technological advancements enable the streamlining ofoperations and make it possible for many insurance companies to reduce thesize of their workforce, the type of employees sought by insurance companies
will surely change. Of course, employees who are young, loyal, and work
really hard are valuable. However, the demand for talented employees whocan, irrespective of age, harness a wealth of practical experience to create
something on their own will likely increase. More and more insurancecompanies these days are raising their mandatory age of retirement fromsixty years to sixty-five years. Revisions made to the Act Concerning the
Stabilization of the Employment of Older Persons, which went into force inApril, mandates that companies make an effort to raise the mandatory age ofretirement to seventy years.
149

Of course, not all elderly persons will be desired by many companies. Yet,the insurance industry is one that is compelled to comply with numerous laws
and guidelines, such that I feel that there is plenty of room to allow elderly
persons with a wealth of experience to play an active role. In any case, there
is no doubt that those who can perform duties that cannot be done by AI
and those who can demonstrate creativity will be in demand. Moreover,increasing the number of women in management positions is a pressing issue
in the insurance industry.
I am often asked, “Insurance companies in Japan employ a large number offemale employees but why are there so few female executives?” The answer
is simple. It is because insurance companies, without exception, used tohire only a very small number of female recent graduates to fill career-track
positions. As a result, men account for an overwhelmingly large number of
executives at insurance companies in Japan and a movement to work hardto increase the number of female managers in this industry is presently
spreading. I heard from a female acquaintance of mine who is a career-track
employee at an insurance company and she relates how she was once told
by a superior that she would not be recognized as a good employee if she
could perform no better than a man. While this is not something that you
can imagine ever being said to someone today, it encapsulates the extremely
conservative values that were prevalent back then in the insurance industry.
Of course, the percentage of women among recently graduated employees in
the insurance industry these days is rising at a dramatic pace and the situation
will likely improve with the passage of time. Cultivating a diversity mindset
for not only the issue of women in executive positions is not just a matter ofprinciple but also an extremely important theme for making the best use of
the skillsets of employees in the workplace.

(8) Office environment
The spread of COVID-19 infections caused many companies to set up
a remote working system to allow their employees to work from home.
1506 The future of the insurance industry

Consequently, many workers were freed from commuting hell and foundthemselves with more spare time on their hands, which they were able to use
to catch up on the sleep they were previously lacking and to spend on interestsand pursuits. Even the members of sales sections who had believed that it was
important to actually meet and speak with clients face to face realized that
it was possible to carry out many sales activities online instead. Of course,
meeting and speaking with someone in the flesh can help get the point acrossmore effectively in some cases and facilitate closer communications, thereby
increasing the chance that you are accommodated. In addition, meetingsomeone in a setting that is not face to face can make it more difficult toengage in an interaction regarding a sensitive topic and more likely to resultin a misunderstanding. The existence of vast office space situated on prime
real estate in urban areas has come to be seen as a problem that arose during
this long period in which employees were working from home. Premiums
obtained from clients can be divided into net or pure premiums and additional
premiums. Additional premiums include the rent for such office space. With
competition for product development expected to persist in the future, itis essential that business expenses be reduced. The fastest way to achieve
this is to lower office rents. Since insurance is a business based on trust andconfidence, it was traditionally thought that having office space situated onprime real estate in an urban area would increase the trust clients placed in
you and help in cultivating loyalty among employees. However, I believethat this is not necessarily an essential condition. Downsizing an urban
office or relocating to the suburbs should be seen as an action that can besocially understood with ease in this day and age. Insurance companies havealways been seen as paper businesses and are now oriented towards paperless
operations in line with the SDGs, which means that there is probably a lotof scope for improvements in terms of the office environment. Downsizing
an office building should be regarded as an important option not just for
reducing the amount of paper consumed but also for helping to reduce carbon
dioxide emissions through reductions in power consumption. It goes without151

saying that offices can never be fully eliminated due to the need to maintainrelationships with external parties.
From the standpoint of employees at a time when paperless operations
are being increasingly adopted, there are now more people who do notparticularly care about where they work so long as it is an environment
in which the Internet can be accessed. In fact, some employees at my own
workplace have gone back to their hometowns to work remotely. When theyneed to physically come to work, there are no problems if they come to theoffice by processing the visit as a business trip. Insurance companies used
to require that employees, regardless of their preferences, live somewhere
within a reasonable commuting distance of the office, whether that wasTokyo or elsewhere. There used to be so many people who felt that they had
to go back home to take care of their parents or for some other reason andtherefore believed that they had no choice but to say goodbye to their career
working for an insurance company. However, more and more insurancecompanies will allow employees to work in remote places, which in and of
itself will serve to draw exceptional people to such companies in hopes ofworking for them.

(9) Other
These days, we have come to hear many news stories about a major life
insurance or non-life insurance company setting up a subsidiary underwriting
small-amount, short-term policies in order to promote the sales of suchpolicies as a group. These subsidiaries sell many unique insurance productsthat belong to a category that is currently attracting a lot of attention; examplesof these products include an insurance product that covers the various costs
associated with the solitary death of a resident, an insurance product thatcovers the cost of tickets if the insured person is unable to participate in an
event due to an emergency, an insurance product that covers the legal fees thatare incurred if the insured is involved in a false accusation of molestation or isa victim of molestation, and an insurance product that pays a lump sum in the1526 The future of the insurance industry

event that the insured contracts COVID-19 or any other infectious disease.
There are, however, probably many people who wonder why a company does
not develop and sell such products on their own. Of course, the fact thateach type of license to operate an insurance business imposes restrictions interms of what kinds of insurance products can be sold under that license is
one reason. Nevertheless, there are several other reasons that apply as well,
the biggest of which is probably the ease with which small-amount, shortterm insurance can be used. Generally speaking, a life insurance or non-life
insurance company wishing to develop a new insurance product needs to
conduct internal studies to a sufficient extent before obtaining the approval of
the authorities and then carrying out system development work and preparing
a solicitation system. All of this requires huge investments in terms of timeand money.
On the other hand, small-amount, short-term insurance companies havean easier time entering the market than regular insurance companies andcan develop products with great agility. Of course, when it comes to smallamount, short-term insurance, there are limits to the insurance amount andterm corresponding to insurance products that can be sold, which means that
we cannot hope to see an explosive volume of sales. However, the ability tosell experimental insurance products at low cost, the way such products canfulfill a foot-in-the-door role in selling a company’s own insurance products,
and the effectiveness of such products in cultivating new markets – suchas consumers in younger age brackets – via the Internet are considered tobe sufficiently advantageous for insurance companies. At a time when
the profitability of existing insurance products is declining for insurancecompanies, experimental initiatives are important and will likely continue tobe undertaken. However, a lack of sufficient capital and shortages of experts
are pressing issues.
I would like to change the topic a bit to note that I have been involved indeveloping products in the non-life insurance and life insurance industries
for more than two decades. Regardless of the industry, the amount of153

useful data we had was key to the development of products. In the past,
apart from the reference loss cost rate calculated by the General Insurance
Rating Organization of Japan and the Standard Mortality Table produced by
the Institute of Actuaries of Japan, the data we used to calculate insurance
premiums were limited to such examples of general statistical data as thePatient Survey and Demographic Survey released by the Ministry of Health,Labour and Welfare. As a result, the premium rates that could be calculated
and risk categories were subject to limits and it was difficult to differentiate
your own products from the products of other companies. However, it istypical now for each insurance company to collect its own performance data
to calculate insurance premiums. In addition, the scope of data that can beused for the development of products has been expanding, as can be seenin the emergence of numerous companies that sell data on subscribers tohealth insurance unions upon converting them into unique codes. Moreover,advancements in FinTech have allowed insurance companies to engage inwide-ranging collaborative actions together with start-up venture companies,
medical institutions, and other entities, the process of which has enabled
them to obtain data that can be helpful for the development of products.
In addition, some insurance companies are proactively working to obtainhealth-related data by having clients and their own employees wear wearable
devices. Of course, you will often hear of cases in which useful data could
not be obtained through the course of a large number of initiatives carried out
as part of upfront investments. Nevertheless, no data can ever be obtained if
no efforts are made.
Accumulated data is of no significance unless it can actually be used.
The use of data for product development purposes is just an example. Data
can also be used to analyze profitability, in conjunction with supplementary
services, for the management of risks, and otherwise for a host of different
purposes. For this reason, many insurance companies are striving hard to hire
and train data scientists.
This is not an assertion I am making because of my position as an actuary,154

6 The future of the insurance industry

but I firmly believe that insurance companies that control the data will
eventually dominate the market.

155

156

7 In conclusion

7

In conclusion

Japan has now entered an age of chaos. Many young people are pessimistic
about the future and cannot envisage a future that is bright. It was against
this backdrop that COVID-19 spread and exacerbated this state of doom andgloom. The Japanese economy is stagnant and the population has begun toshrink thanks to the country’s super-low birthrate and the aging of society.
There is no doubt that these uncertainties regarding the future are helping tofurther spur on the decline in the birthrate in Japan.
It has been a quarter of a century since the insurance industry in 1996
first started to undergo a massive event consisting of deregulation andliberalization. The insurance industry up to that point in time was an industry
that had been relatively stable, such that it was almost inconceivable for
a company to fail as long as it adopted an orthodox strategy and stuck tocopying the activities of other companies. While a number of insurancecompanies went under in the wake of the collapse of the bubble economy,these failures were mostly attributable to the materialization of investment
risks. Given the low interest rates that remain in place, it is hard to imagine
that an insurance company committing the same mistake these days would
emerge.
However, as stated in this book, there are too many negative aspects woven
into the fabric of the insurance industry today; few stakeholders can imagine
a future that is decidedly optimistic. There is no mistaking the fact that the
gravy train – which refers to the time when an insurance company could
simply develop the same insurance product sold by other companies and sell
it to generate substantial profits – has left the station. The stable industry of157the past is no more. Indeed, the insurance industry could, like other industries,
decline at any time. When I speak with friends in the insurance industry, I
realize that many people are seriously wondering what they can do to keep
their heads above water until they retire.
Having said that, the function of insurance is absolutely vital in society,and I am convinced that it will not disappear in the future. This is because therole it plays in terms of helping people in financial distress is an important one
and because the business of insurance is one that is of a highly public nature.
Management executives at insurance companies will be required to have an
excellent sense of balance to allow them to handle these challenging issues
and steer their companies down the right path. To this end, they must have theskills to obtain and correctly analyze a broad array of information from within
and outside the insurance industry and ensure the effective implementationof strategies accordingly. Unfortunately, insurance companies that fail may
ultimately be culled from the industry. Insurance companies that survive
will surely be those that can recognize opportunities in dire moments andtake actions that are forward-thinking and positive. We operate in a difficult
environment, but I fervently hope that the insurance industry will continue
to evolve in a healthy manner and trust that the healthy evolution of theinsurance industry will stabilize social infrastructure and thereby lay thefoundation for the growth of the sluggish Japanese economy.

158

Profile of the author

Profile of the author

Toshiya Noguchi was born in Yamaguchi Prefecture on October 5, 1968.
After graduating from the Department of Mathematics of the Faculty of
Science and Technology at Keio University in March 1993, he joined Mitsui
Marine & Fire Insurance (currently Mitsui Sumitomo Insurance Company) in
April 1993, where he was in charge of retail sales, commercial sales, productdevelopment, product management, product promotion, underwriting,and actuarial operations. In April 2005, he was temporarily transferred to
Mitsui Sumitomo Marine City Insurance Life Insurance (currently Mitsui
Sumitomo Primary Life Insurance), where he was in charge of productdevelopment, actuarial operations, re-insurance, and more. In July 2007, hejoined SBI Life Insurance Establishment Preparatory Company (currently
AXA Direct Life Insurance), where he was in charge of product development,
sales management, advertising, planning and research, and more. In June
2012, he joined the Japanese branch office of Zurich Life Insurance Co.,
Ltd., (currently Zurich Life Insurance), where he was in charge of productdevelopment, policyholder services, marketing, advertising, branding, CSR,
SDGs, and more and succeeded in reorganizing the company’s management
structure. Since July 2023, he has been serving as Representative Director
and President of AEON Allianz Life Insurance Co., Ltd.

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This book is originally published by Kabushikigaisha Kinzai in 2021. With the consent of the author
and the publisher, OLICD Center translated the book into English in March 2024.