CHAMBERS GLOBAL PRACTICE GUIDES

Insurance &Reinsurance 2023
Definitive global law guides offering
comparative analysis from top-ranked lawyers

Japan: Law & Practice
Hironori Nishikino and Koji Kanazawa
Chuo Sogo Law Office P.C.

practiceguides.chambers.com

JAPAN
Law and Practice

China

RussiaN. Korea

Contributed by:
Hironori Nishikino and Koji Kanazawa
Chuo Sogo Law Office P.C. see p.18

S. Korea

Japan

Tokyo

Contents
1. Basis of Insurance and Reinsurance
Law

p.4

1.1 Sources of Insurance and Reinsurance Law

p.4

2. Regulation of Insurance andReinsurance

p.4

2.1 Insurance and Reinsurance Regulatory Bodies
and Legislative Guidance

p.4

2.2 The Writing of Insurance and Reinsurance

p.5

2.3 The Taxation of Premium

p.5

3. Overseas Firms Doing Business in the
Jurisdiction

p.6

3.1 Overseas-Based Insurers or Reinsurers

p.6

3.2 Fronting

p.7

4. Transaction Activity

p.7

7. Alternative Risk Transfer (ART)p.11

7.1 ART Transactions

p.11

7.2 Foreign ART Transactions

p.11

8. Interpreting an Insurance Contractp.11

8.2 Warranties

p.11

8.3 Conditions Precedent

p.11

9. Insurance Disputes

p.12

9.1 Insurance Disputes Over Coverage

p.12

9.2 Insurance Disputes Over Jurisdiction and
Choice of Law

p.12

9.3 Litigation Process

p.12

9.4 The Enforcement of Judgments

p.12

9.5 The Enforcement of Arbitration Clauses

p.12

9.6 The Enforcement of Awards

p.12

8.1 Interpretation of Insurance Contracts and Useof Extraneous Evidence
p.11

4.1 M&A Activities Relating to Insurance
Companies

p.7

5. Distribution

p.8

9.7 Alternative Dispute Resolution

p.12

5.1 Distribution of Insurance and Reinsurance
Products

9.8 Penalties for Late Payment of Claims

p.12

p.8

9.9 Insurers’ Rights of Subrogation

p.12

6. Making an Insurance Contract

p.10

10. Insurtech

p.13

10.1 Insurtech Developments

p.13

10.2 Regulatory Response

p.13

11. Emerging Risks and New Products

p.14

6.1 Obligations of the Insured and Insurer

p.10

6.2 Failure to Comply With Obligations of an
Insurance Contractp.10

6.3 Intermediary Involvement in an Insurance
Contract

p.10

6.4 Legal Requirements and Distinguishing
Features of an Insurance Contract

11.1 Emerging Risks Affecting the InsuranceMarketp.14

p.10

11.2 New Products or Alternative Solutions

p.14

6.5 Multiple Insured or Potential Beneficiaries

p.11

6.6 Consumer Contracts or Reinsurance
Contracts

p.11

2

CHAMBERS.COMJAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

12. Recent and Forthcoming Legal
Developments

12.1 Developments Impacting on Insurers or
Insurance Products

p.14
p.14

13. Other Developments in Insurance Law p.16
13.1 Additional Market Developments

3

CHAMBERS.COM

p.16

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

1. Basis of Insurance andReinsurance Law
1.1 Sources of Insurance andReinsurance Law

The Insurance Business Act is the basis for the
regulation of insurance businesses in Japan,
providing a contractual relationship surrounding insurance products. Although Japan is not
a common law country, the judicial precedent,
especially that established by the Supreme
Court, should be referred to when interpreting
insurance contracts.

2. Regulation of Insurance andReinsurance
2.1 Insurance and Reinsurance
Regulatory Bodies and Legislative
Guidance

Against this background, entities targeted forsupervision not only have to make sure that laws
and regulations are being observed but mustalso follow the guidelines officially promulgatedby the regulatory authorities (Comprehensive
Guidelines for the Supervision of Insurers).
Underwriting Life and Non-life Insurance
Underwriting life insurance and non-life insurance entails obtaining the necessary businesslicences from the regulatory authorities. Suchlicences for life insurance and non-life insurance business cannot be acquired by the same
company, and companies are prohibited fromrunning both businesses concurrently. However, both life insurers and non-life insurers are atliberty to offer insurance such as medical careinsurance, accident insurance, or overseas travel accident insurance, ie, insurance from the socalled “third sector” insurance market.

The Financial Services Agency (FSA) is the regulatory authority for insurance and reinsurance
businesses in Japan. Life and non-life insurers are regulated by the Insurance BusinessAct. Reinsurers are regulated in the same way
as non-life insurers. Based on the Insurance
Business Act, the regulatory authorities havethe power to issue administrative dispositions
to insurance companies, including orders forbusiness improvement, orders for suspensionof business, and/or orders for cancellation oflicences.

Nevertheless, life insurance companies – whether operating in the form of a kabushiki kaisha or
mutual company – must have board of directors’
meetings, auditors’ meetings, audit and othercommittee meetings, and meetings such as
nominating committee meetings, and accounting auditors. Foreign companies intending toenter into the Japanese market through theirsubsidiaries are required to acquire the licences
mentioned above. Foreign companies planningto enter through their branch offices must obtainforeign insurer’s licences.

In fact, broad discretion is given to the regulatory authorities, and those administrative dispositions against insurance companies invokedby the regulatory authorities are not necessarily
based on the assumption that violations of law
by insurance companies have taken place.

During the licence application procedure, the“basic documents” (articles of incorporation,business plan, standard policy provisions anddocuments showing the method to calculate
insurance premiums and policy reserves) mustbe submitted to the regulatory authorities. Furthermore, insurance companies cannot operate their businesses while being in violation of

4

CHAMBERS.COMJAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

the basic documents, and, in order to develop
and offer new insurance products, must procure approval for corresponding changes to thebasic documents from the regulatory authorities(“Insurance Product Approval” – regular processing takes 90 days, standardised 45 days). However, regarding certain types of insurance, suchas fire insurance where there is little concern of
insufficient policyholder protection, a notification
system to the regulatory authorities has been
adopted; nevertheless, notification may not be
required in cases where insurance companies
state in the statement of business proceduresthat special provisions related to business insurance are to be established or modified without
notifications (“Flexible Provision System”).
Other Business and Subsidiaries
Insurance companies are not permitted to conduct any business other than the insurance
business (underwriting insurance) and businessincidental thereto (restriction on other business).
Furthermore, insurance companies are notallowed to own subsidiaries that perform businesses other than as legally stipulated, or obtainvoting rights in domestic companies in excess
of 10% of their total voting rights. However, withthe approval of the regulatory authorities, insurance holding companies may have companies
as their subsidiaries that insurers themselves
may not own.
With respect to prescribed matters (which arequite extensive), such as customer explanations,or information control, insurance companies are
obligated to have a system in place to securesoundness of operations and appropriate management. The minimum amount of capital of an
insurance company is JPY1 billion.

5

CHAMBERS.COM

Policy Reserves
Insurance companies are required to accumulate policy reserves and appoint an insurance
administrator with a predetermined actuary’s
licence to be involved in work related to actuarial science. In 1996, regulations on the solvency
margin ratio were introduced. The solvency margin index has become an assessment standard
for the supervisory authorities to execute earlycorrective actions with broad supervisory reachagainst targeted companies, including orders to
submit an improvement plan.
At present, the solvency margin ratio on a consolidated basis has been introduced. In March
2016, the European Union announced the adoption of the equivalence recognition between
Solvency II with temporary equivalence and theJapanese reinsurance supervision and groupsolvency. In June 2020, the Advisory Council on
the Economic Value-Based Solvency Framework, which was established at the Financial
Services Agency, published a report in light ofwhich the FSA is currently deliberating the Economic Value-Based Solvency Regulation aheadof its implementation in 2025. On 30 June 2022,
the FSA published a report on “The Tentative
Decisions on the Fundamental Elements of the
Economic Value-Based Solvency Regulation” tohelp prepare for the implementation of the insurers’ organisational restructuring.

2.2 The Writing of Insurance andReinsurance

See 2.1 Insurance and Reinsurance Regulatory
Bodies and Legislative Guidance.

2.3 The Taxation of PremiumThis is not applicable in Japan.

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

3. Overseas Firms Doing Businessin the Jurisdiction

Business Act) other than the insurance contracts
listed below:

3.1 Overseas-Based Insurers orReinsurers• reinsurance contracts;• marine insurance contracts pertaining to
objects such as vessels with Japanesenationality used for international maritime
transportation;• aviation insurance contracts pertaining toaircrafts with Japanese nationality used forcommercial aviation;• insurance contracts pertaining to launching
into outer space;• certain insurance contracts covering cargo
located within Japan which is in the processof being shipped overseas; and• overseas travel insurance.

Under the Insurance Business Act, the regulations that apply to Japanese insurance companies also apply to local subsidiaries of overseasbased insurers. Nevertheless, the Act allows
foreign insurance companies to conduct insurance business without establishing such local
subsidiaries.
Foreign insurance companies may conduct
insurance business in Japan only if they haveopened a branch in Japan and obtained theapplicable licence from the FSA, the body overseeing insurance companies (Article 185-1 ofthe Insurance Business Act). This requirement
allows the FSA to effectively execute administrative power over such foreign insurers. With
some exceptions, Article 185-6 of the Insurance Business Act requires such licensed foreign insurers to conclude insurance contracts
with persons having an address or residence inJapan, property located in Japan, or vessels or
aircrafts with Japanese nationality inside Japan.
The procedure to apply for the licence is mostly
the same as that for Japanese insurance companies. Since foreign insurance companies do
not have capital inside Japan, they are required
to deposit a minimum of JPY200 million to thedeposit office to protect policyholders.
Restrictions on Unlicensed Foreign Insurance
Companies
Unlicensed foreign insurance companies may
not conclude insurance contracts with persons
having an address or residence in Japan, property located in Japan, or vessels or aircrafts withJapanese nationality (Restriction on Foreign
Direct Insurance; Article 186-1 of the Insurance
6

CHAMBERS.COM

Exceptions and permissions
The restriction does not apply when an applicant
wishing to purchase insurance from unlicensed
insurance companies has obtained a permission
from the FSA in advance of their applications
for insurance as set forth in Article 186-2 of the
Insurance Business Act. This exception is provided for to enable policyholders to purchaseinsurance products that are most beneficial tothem. That permission may not be provided in
the following cases:• the insurance product in question violates
laws or is unfair;• it is easy to conclude insurance contracts
with licensed Japanese or foreign insurers forcomparable insurance products on equal ormore advantageous conditions;• the terms and conditions of the insurance
product in question are significantly unbalanced compared to the typical terms andconditions of the same type of insurance
products with licensed Japanese or foreign
insurers;

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

• concluding such insurance contracts would
unjustly deprive the insured and other related
persons of their benefits; and• concluding such insurance contracts would
likely negatively impact the development of
the Japanese insurance business or be harmful to the public interest.
In a recent trend, the government of Tokyo ispursuing a policy to attract overseas financial
business providers to the Japanese market byproviding assistance to cope with complicatedfinancial regulations in Japan, such as opening
a one-stop service centre for financial start-ups.
It is expected that such a move will attract more
overseas insurance companies and revitalise theTokyo financial markets.

3.2 Fronting

Fronting is not expressly prohibited nor permitted in Japan and there are no explicit expectations with regard to the cedent’s retention.

4. Transaction Activity
4.1 M&A Activities Relating to Insurance
Companies

Existing insurance businesses may be acquiredin several ways, such as through obtaining sharesof Japanese insurance companies, a merger of
insurance companies, or sale and purchase of
insurance business. The Insurance Business Act
provides a regulatory framework for these M&A
activities of insurance businesses.
Obtaining Shares
Under the Japanese regulatory framework,
shareholders who own a certain percentage ofvoting rights in insurance companies are subject
to oversight of the regulator.

7

CHAMBERS.COM• A shareholder with more than 50% voting
rights in an insurance company is required
to obtain an approval from the Financial
Services Agency (FSA) in advance of acquisition of such voting rights (Insurance Holding
Company; Article 271-18-1 of the Insurance
Business Act). Insurance holding companies are subject to strict regulations including those regulating the scope of businessand imposing subsidiary restrictions, and, incertain instances, reporting obligations. As of
1 August 2022, 15 insurance holding companies have been approved by the FSA.
• Except for insurance holding companies, ashareholder with 20% or more voting rights in
an insurance company needs approval fromthe FSA in advance of acquisition of suchvoting rights (Major Shareholder of Insurance
Companies; Article 271-10-1). Such approvalis required even if the investor resides overseas. The FSA oversees major shareholders
of insurance companies by imposing reporting obligations and taking administrative
dispositions.
• A shareholder with more than 5% voting
rights in an insurance company is required
to report such acquisition of voting rights
within five days (in case of foreign investors,
one month) to the FSA (Shareholders with
Large Voting Rights in Insurance Company;
Article 271-3-1 of the Insurance Business
Act). The shareholder has to submit a report if
the shareholder’s percentage of voting rights
changes by 1% or more (either as an increaseor decrease). The FSA may take administrative dispositions against shareholders withlarge voting rights in an insurance company
if the FSA finds the report submitted includes
false information or lacks important or necessary information, thus causing potential
misunderstanding.

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

Mergers
A merger with an insurance company requires
approval by the FSA. Article 167-2 of the Insurance Business Act provides the following standards/checkpoints that the FSA could use indetermining whether to give an approval:

notice and notify each policyholder, and provide
policyholders a chance to file objections to thetransfer.

• the merger is appropriate in light of the protection of policyholders;• the merger will not hinder fair competition
among insurance companies; and• it is certain that the surviving insurancecompany after the merger will be capable ofoperating the insurance business appropriately, fairly and effectively.

5.1 Distribution of Insurance andReinsurance Products

Sale and Purchase
A sale and purchase of insurance business also
requires approval from the FSA, pursuant to Article 142 of the Insurance Business Act. Purchasers of insurance businesses must be licensed
insurance companies. Such sale and purchasealso requires a separate approval to transfer
insurance contracts from the FSA, pursuant to
Article 139 of the Insurance Business Act. Petitions for approval to transfer insurance contracts
are reviewed according to the following standards/checkpoints:

In the case of a life insurance company, only
registered life insurance agents (officers andemployees of a life insurer; life insurance agencies (agents) as well as their officers, employees
and other personnel) may conduct “insurance
solicitation.” A characteristic feature of Japanese selling channels is for life insurance companies to utilise a large number of salespeople
who have long belonged to those companies(mostly female employees known as “Sei-ho
ladies”) among their overall salespersons. Put
simply, every person selling insurance contracts
has to be registered to do so. In principle, in thecurrent legal system, life insurance agents may
deal with insurance products of only one insurance company. In other words, they operate
within the so-called one-company exclusive system. However, by fulfilling the prescribed legal
requirements (such as enrolling two or morelife insurance agents) it is possible to deal withinsurance products of multiple insurance companies – in fact, quite a number of independentagencies currently do this.

• the transfer of insurance contracts is appropriate in light of the protection of policyholders;• it is certain that the transferee will be capableof operating the insurance business precisely,
fairly and effectively; and• the transfer does not unjustly affect the benefit of the creditors of the transferor.
The Insurance Business Act does not requirepolicyholders’ approvals for transfers of insurance contracts to another insurance company. Instead, the transferor must make a public
8

CHAMBERS.COM

5. Distribution

Unless otherwise allowed by any other law, theInsurance Business Act prohibits any personfrom acting as an agent or intermediary to conclude insurance contracts, an activity that falls
within the definition of “insurance solicitation”
under the Act.

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

Non-life Insurance Companies
The situation involving non-life insurance companies (including a reinsurance company) is asfollows.
• It is recognised that officers (other than auditors) and employees of a non-life insurer may
engage in “insurance solicitation,” not only
without being registered but also, similarly toofficers and employees of below-mentioned
non-life insurance agencies, without any obligation to give notice thereof. In many cases,
employees of a non-life insurance company
engage in “non-face-to-face” offerings oftheir products (by such means as telephone,mail or internet) and tend to transfer business
opportunities with large-scale companies totheir head office for handling.
• Registered non-life insurance agencies, theirofficers (with the exception of auditors) andtheir employees may engage in “insurance
solicitation”. No officers or employees of
non-life insurance agencies are required to beregistered, however, they are required to givenotice of such a fact.
The majority of non-life insurance sales are
made by agencies, which account for 90.7%of total sales on a direct-net-premiums-written
basis, while sales by officers and employees of
insurance companies (through their direct sales)
and insurance brokers account for only around
8.6% and 0.7% respectively.
Dedicated insurance agencies account for 18%(based on the number of entities involved) of
all non-life insurance agencies. Around 55% of
non-life insurance agencies which are involvedin another business are automobile dealers andrepair shops, and around 10% of them are entities within the real estate industry – with both
figures standing at high percentage rates.
9

CHAMBERS.COM

Insurance Brokers
Registered insurance brokers may also engage
in “insurance solicitation” (limited to mediatingconclusions of insurance contracts). The Insurance Business Act has assigned special duties
to such insurance brokers, including:• the duty to deposit a security guarantee(JPY20 million at the time of commencementof their business, which can be exchanged
for an insurance broker’s liability insurance
policy);• the duty to disclose fees and commissions;• the duty to prepare bought and sold notes;• the duty of loyalty (the duty of “best advice”);
and• other special duties that have not been
imposed on insurance agents.
There are only 54 insurance brokers in Japan,
which is comparatively low. While most of themfocus on large-scale businesses, handling products for individual consumers is extremely rare.
Sales Through Banking Channels
Insurance sales through banking channels inJapan commenced in 2001 but the number of
products they could sell was severely restricted. The range of insurance products available
for sale by banks has since expanded multiple
times, and the restrictions were totally removed
in 2007.
Banks function as insurance agents in the selling
process. In this respect, it is worth mentioningthat additional special regulations have been
applied to banks in order to avoid circumstances of insufficient consumer protection, which
could result from improper use of the banks’
information-gathering ability in relation to customers’ funds or their improper influence overcustomers.

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

Strict regulations have been imposed on banks,
including measures/regulations for the protection of non-public information (pursuant to whichcustomer information obtained through theirbanking business cannot be used in connection
with insurance solicitation without customers’
consent) or the regulations concerning solicitingof borrowers (where certain types of insurance
products cannot be sold to customers who are
granted business loans). While these additional
regulations have been imposed for the protection of consumers, they essentially function toprotect the traditional channels of insurance
distribution.
Recently, “open-for-visitor” agencies havestrengthened their presence. Out of the insurance products of multiple insurance companies,
these agencies make – on their own initiative –proposals of insurance products that conform tocustomers’ actual needs, which open-for-visitor
agencies call consultative selling.

6. Making an Insurance Contract
6.1 Obligations of the Insured andInsurer

The Insurance Business Act imposes on a policyholder or the insured a duty to disclose material matters regarding risks requested to be disclosed by the insurer (the duty of answering thequestion).
This is a unilaterally mandatory provision (aprovision that makes void those agreements
that, contrary to this provision, adversely affectpolicyholders); however, in the field of non-life
insurance – for example, maritime insurance
contracts, aviation insurance contracts, nuclear
energy insurance contracts and non-life insurance contracts – the coverage of damages
10

CHAMBERS.COM

arising from business activities conducted by ajuridical person or some other organisation or anindividual who operates a business is excluded
from the scope of the application of the foregoing provision.

6.2 Failure to Comply With Obligations ofan Insurance Contract

If a policyholder or the insured violates the aforementioned duty, the insurance company may
cancel the insurance contract and, except fordamages not arising from violation of the dutyof disclosure, will be discharged from liability formaking insurance payments. An insurance company’s right of cancellation will be extinguished
one month after it learns the cause of the cancellation, or five years after the conclusion of thecontract.

6.3 Intermediary Involvement in an
Insurance Contract

While insurance agents act on behalf of insurance companies, insurance brokers act onbehalf of customers independent from insurancecompanies (buyer’s agents).

6.4 Legal Requirements andDistinguishing Features of an Insurance
Contract

Insurance contracts may be concluded verbally but, in practice, it is commonly done inwriting so that the conditions of the contracts
are clarified. The existence of insured benefits(economic benefits that may be disadvantagedby the occurrence of insured events) is required
as a condition to effectuate a non-life insurance
contract. The insured is the person to whom theinsured benefit belongs.
The reason for the existence of insured benefits
is to prohibit gambling and prevent moral hazards. However, this requirement for the existence

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

of insured benefits tends to be applied fairly
moderately and flexibly.

6.5 Multiple Insured or Potential
Beneficiaries

In non-life insurance, only the insureds may be
the beneficiaries of an insurance contract. Insurance benefits are paid to the insureds and/or
parties authorised by the insureds to receive thebenefits.

6.6 Consumer Contracts or Reinsurance
Contracts
This is not applicable in Japan.

7. Alternative Risk Transfer (ART)
7.1 ART Transactions

Based on the content of the product, it should
be determined whether such product is subject
to Japanese regulation. Certain products may besubject to regulation as reinsurance products.

7.2 Foreign ART Transactions
This is not applicable in Japan.

8. Interpreting an Insurance
Contract
8.1 Interpretation of Insurance Contracts
and Use of Extraneous Evidence

There are no laws or regulations on how to interpret contracts specific to insurance contracts.
In general, the courts interpret insurance contracts objectively, taking into account their comprehensibility by average, reasonable customers. Nonetheless, the courts tend to recognise
agreements between insurance companies andcustomers that differ from explicit policy condi11

CHAMBERS.COM

tions, taking into consideration the way in which
insurance companies and customers negotiatedand concluded their insurance contracts, andseek reasonable solutions while ordering compensation for damages.
At the time of solicitation of an insurance contract, the Insurance Business Act requires insurance companies to deliver documents (contract
outline) containing the following items to fulfil
their obligation to provide information:• the structure of the insurance policy/coverage;• matters concerning insurance benefits(including giving typical examples of payment
conditions of insurance benefits and explaining cases where insurance benefits are notpaid);• duration of the insurance policy;• the amount of insurance and other conditions
for underwriting of insurance contracts;• the payment of insurance premiums;• cancellation of insurance contracts andrefunds thereof;• cooling-off procedures;• matters concerning the notification to bemade by the policyholder or the insured;• the timing of commencement of insurance
liability;• the grace period for payment of insurance
premiums; and• the invalidation and reinstatement of insurance contracts after their expiration.

8.2 Warranties

This is not applicable in Japan.

8.3 Conditions PrecedentThis is not applicable in Japan.

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

9. Insurance Disputes
9.1 Insurance Disputes Over Coverage

Insurance disputes are generally resolved in
district courts or summary courts, dependingon the value of the dispute. There are no special courts for resolving commercial insurance
disputes and, therefore, the same procedure
is applicable to both consumer contracts andreinsurance contracts. In practice, a jurisdiction
clause in an insurance policy determines which
court will hear disputes in relation to the insurance policy.

9.2 Insurance Disputes Over Jurisdiction
and Choice of Law
See 9.1 Insurance Disputes over Coverage.

9.3 Litigation Process

Generally, a first hearing date is scheduledaround one month after the filing of a lawsuit.
It usually takes six months to one year to reacha judgment.
The losing party may appeal to the upper court
based on any grounds if it is not satisfied withthe decisions of the court of first instance. There
are two stages of appeal.

9.4 The Enforcement of Judgments

A foreign judgment is required to be recognised
in Japanese courts. To be capable of recognitionand enforcement, a foreign judgment must satisfy the requirements of Article 118 of the Codeof Civil Procedure. Whether these requirements
are satisfied will be determined by the court inan action for “execution judgment” under Article
24 of the Civil Execution Act.

9.5 The Enforcement of Arbitration
ClausesThis is not applicable in Japan.
12

CHAMBERS.COM

9.6 The Enforcement of Awards

The Arbitration Act provides that an arbitration agreement must be in writing but does not
require any specific wording. Parties to the arbitration may not appeal to the courts regarding
the decision of the arbitral tribunal. However, theArbitration Act provides that the parties may filea petition to set aside the arbitral award to thecourt in some situations, such as invalidity of
the arbitration award due to the limited capacityof a party.
Japan is party to the New York Convention, andarbitration awards received in the member countries can be enforced in Japan.

9.7 Alternative Dispute Resolution

Insurance alternative dispute resolution (ADR)
is common, especially in the field of consumer
contracts. An increasing number of insurancerelated disputes are resolved through ADR.

9.8 Penalties for Late Payment of Claims

Japan has not introduced the concept of punitive damages. Late payment interest is recoverable in respect of claims. Before 31 March 2020,
the rates for late payment interest were 5% perannum for non-commercial claims and 6% perannum for commercial claims. As of 1 April 2020,
the amendment of the Civil Code became effective and a new structure for late payment interest
was introduced, ie, 3% per annum with subsequent reviews every three years to reflect market
interest rates.

9.9 Insurers’ Rights of Subrogation

For non-life insurance, Article 24 of the Insurance Act provides that, where insured property
is totally lost or destroyed, an insurer that has
paid an insurance proceeds payment shall besubrogated to ownership and any other real rightthat the insured holds over the insured property,

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

in accordance with the ratio of the amount of
the insurance proceeds payment thus paid to
the insured value (or the agreed insured value if
there is any such amount).
Article 25 of the Act provides that, when an
insurer has made an insurance proceeds payment, the insurer shall be subrogated withregard to any claim acquired by the insured dueto the occurrence of any damages arising froman insured event up to the smaller of:• the amount of the insurance proceeds payment made by the insurer; or• the amount of the insured’s claim.

10. Insurtech
10.1 Insurtech Developments

In Japan, the emergence of fintech was, at first,
most pronounced in the banking sector. Indeed,
the Japanese government first responded to
fintech by amending the Banking Act so thatbanks could own technology companies as theirsubsidiaries, which was previously restricted tosome extent (the “Amended Banking Act”). The
Amended Banking Act came into force on 1 April
2017. In 2021, the Insurance Business Act wasamended in the same way for insurance companies to own subsidiaries that provide IT andother technology to enhance insurance activities
and beneﬁt the insurance companies’ customers.
Adoption of New Technologies
Japanese insurance companies are graduallyadopting new technologies such as IoT (Internet of Things), big data and artificial intelligenceto their services. For example, Tokio Marine &Nichido Anshin Life Insurance Co Ltd has introduced a medical insurance policy where an
13

CHAMBERS.COM

insured might obtain cash back of insurance
fees if they walked certain average number ofsteps, daily. The insured would be required touse wearable technology to monitor their activities and record their health data.
Another example is Sony Assurance Inc’s automobile insurance, where an insured has a “driving counter” installed in their car to monitor the
insured’s driving. If it shows safe driving on thepart of the insured, the insurer will provide cash
back towards the insurance fees.
Alliance with Tech Companies
Insurance companies alone may not be able tocreate new insurtech products because they
do not have enough resources/knowledge todevelop new technology. An alliance with techcompanies or telecoms companies is therefore
necessary. Another question has been whether
insurance companies are allowed to own techcompanies or telecoms companies as their subsidiaries to take full control of the new technologies.
The Fintech Support Desk
The FSA regards the fintech trend quite positively. One example of the positive attitude of
the FSA is the Fintech Support Desk, which wasestablished to provide a streamlined process for
fintech businesses. Indeed, the FSA appears to
be watching developments regarding insurtech
with a high degree of interest.

10.2 Regulatory Response

See 10.1 Insurtech Developments.

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

11. Emerging Risks and New
Products

ance companies to recover from automobile
manufacturers effectively.

11.1 Emerging Risks Affecting theInsurance Market

Tokio Marine & Nichido Fire Insurance Co Ltd
has added protection to cover accidents arisingfrom malfunctions in autonomous driving systems in order to provide prompt relief to victimsof such accidents.

Cyber-attacks have come to pose a severe andpresent risk, which Japanese companies haveto cope with. Even though countermeasures arebeing introduced, they can easily be renderedineffective. The Ministry of Economy, Trade andIndustry of Japan (the METI) issued the Cybersecurity Management Guideline, which establishes
that cybersecurity is a business challenge andthat Japanese companies have to take appropriate protective actions.
To respond to such situations, insurance companies have developed insurance products to cover the costs of information leakage or damages
caused by a cyber-attack. However, considering
the survey conducted by the General Insurance
Association of Japan in 2020 showing that only
6.7% of SMEs respondents have purchasedcyber-insurance, the cyber-insurance market in
Japan still has significant room to grow.

11.2 New Products or Alternative
SolutionsWith advancements in autonomous car technology, the question of who should bear legal
responsibility in the case of accidents involving
self-driving cars is being debated. The Study
Group on Liability for Damages in Autonomous
Driving that was established by the Ministry ofLand, Infrastructure, Transport and Tourism (theMLIT) published its report in March 2018. In thereport, the Study Group concluded that, in thetransition period where autonomous technology
from level 0 to level 4 exist intermixedly, while
drivers should basically bear legal responsibility
for the damage arising from car accidents, it isappropriate to establish a framework for insur14

CHAMBERS.COM

Increased longevity may affect the strategy of
insurance companies. Recently, the Institute ofActuaries of Japan published the Standard Longevity Table 2018 (previously amended in 2007),
indicating significant decreases of projected death
rates. With this trend, it is reported that insurancecompanies will lower fees for life insurance by
5%-10% for newly entered insurance contracts.
It is also reported that demand is gradually shifting away from life insurance to products coveringliving costs when the insureds become unable towork, reflecting increased longevity.

12. Recent and Forthcoming Legal
Developments
12.1 Developments Impacting on
Insurers or Insurance Products

COVID-19
On 10 April 2020, as the impact of COVID-19
continued to expand, the FSA requested that theinsurance industry consider, from the viewpointof protecting policyholders, a more flexible interpretation and application of policy conditions
regardless of any precedents.
Since then and until recently, the insurance companies’ policy was to pay insurance benefits by
taking that request into consideration. For example, insurance companies paid hospitalisation
benefits to COVID-19 patients with mild or no
symptoms who were given treatment at various

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

lodging facilities or at home in order to secure
the availability of the hospital system to severely
ill patients.
However, on 1 September 2022, the FSA took
steps toward facing the new reality of living with
COVID-19 by announcing a policy to limit thescope of hospitalisation payments to persons
at a high risk of becoming severely affected by
COVID-19, including:• persons aged 65 or older;• persons in need of hospitalisation;• persons with COVID-19 who are likely tosuffer severely from it and thus are in need ofreceiving a therapeutic agent or oxygen; and• pregnant women.
For the most part, all insurance companies havebeen applying this limitation to persons diagnosed with COVID-19 from 26 September 2022
onwards.
On 5 June 2020, the “Act on Sales, etc, of Financial Instruments” was amended and renamed
the “Act on the Provision of Financial Services;”
this Act came into effect on 1 November 2021,
as a part of the legislation on cross-sectional
financial services intermediaries.
New Intermediary Business Category
The new law introduces a new category of“Financial Services Intermediary Businesses,”a category which entails a registration systemthat allows for a one-stop mediation service inall financial areas for a single registration, covering banking, securities, insurance, and loans(ie, cross-sectional legislation for the provisionof financial services).
Today, while the employment and the householdarrangements have diversified, the progress of
15

CHAMBERS.COM

information and communications technology
has enabled the provision of various financial
services online. In this context, the new law puts
emphasis on allowing users of financial services
more freedom of choice in obtaining financial
services that satisfy their individual needs.
Belonging to Financial Institutions
Belonging to a specific financial institution is not
required to start a financial services intermediarybusiness. However, a security deposit is mandatory to secure financial resources to pay potential compensation in the future. Furthermore, afinancial services intermediary is not allowed
to accept users’ assets, handle certain typesof services, or concurrently run an insurance
agency or a brokerage business.
Scope of Insurance Products
The scope of insurance products that can behandled by financial services intermediaries isstipulated by a government decree, but financial
service intermediaries are not allowed to handle insurance policies with strong investment
potential, fire insurance, reinsurance, businessoriented insurance, group insurance, and nonlife insurance with insurance amounts exceeding
JPY20 million.
Insurance Brokers
Each individual insurer has to decide how to deal
with financial services intermediaries and what
attitude to adopt towards this new sales channel. The insurance sector already has a longstanding market player in the form of an insurance broker which is independent from insurers.
To determine what stance to take towards financial services intermediaries, insurers are advised
to analyse their own relationships with brokers,
bearing in mind the different functions served bybrokers and intermediaries.

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

13. Other Developments inInsurance Law
13.1 Additional Market Developments

General Principles of Customer-CentricBusiness Operation (Comparable Common
KPIs for Foreign-Currency-DenominatedInsurance)
On 30 March 2017, the FSA published the “General Principles of Customer-Centric Business
Operation.” If financial undertakers running afinancial company attempt to adopt these general principles (while it is up to financial undertakers whether they adopt them, in practice, it
is difficult for insurers to choose not to), they
are required, for example, to develop and makepublic clear guidelines to achieve the customercentric business operation and regularly makepublic announcements on how their efforts inrelation to such guidelines are progressing.
The FSA’s strategic priorities for the fiscal year
2022 are as follows.
• Based on the reports on the policy for initiatives, etc, the list of financial business operators is to be updated and disclosed on aregular basis. Also, with regard to the reports
on common KPIs at investment trusts, thefigures should be compiled and analysed, andthe results thereof disclosed.
• With regard to common KPIs for foreign
currency-denominated insurance policies, theanalytics must also be disclosed in the samemanner as in the case of investment trusts.
Furthermore, the dissemination and penetration of common KPIs for foreign currencydenominated insurance policies should bepromoted, and financial institutions should be
encouraged to disclose such KPIs.

16

CHAMBERS.COM• Financial institutions’ policies for initiatives
that are considered to be well-designed
should be collated and used as case studies.
• Financial institutions’ specific initiatives oncustomer-centric business operations should
be monitored to verify that they are clearlystated in the policies for initiatives and firmly
adopted by front-line sales staff.
• Financial institutions’ organisational structures should be monitored to ensure that they
are positioned to create, sell and manage
products that contribute to the formation ofcustomers’ assets. In particular, with regard
to financial institutions that handle speciallystructured bonds, their structures should bemonitored to see if the management considers the continuation of such business fromthe above-mentioned viewpoint and, if the
management chooses to continue, whether it
has considered the target customers and thecontent of the explanation for the target customers from the viewpoint of realising sales
that would meet true customer needs.
• With regard to sales of foreign currencydenominated insurance, the status of penetration and establishment with respect tothe initiatives of insurance companies andother financial institutions selling insurance
products on their behalf (eg, solicitation
management and after-sales follow-up) mustbe followed up through dialogue with suchcompanies and agents and questionnaires.
• The idea of the “visualisation” measures
should be widely disseminated to those keen
on asset building, through magazine articles
or lectures.
• Discussions with the insurance industry
should continue with the aim of enabling theprovision of easy-to-understand information
by way of the Important Information Sheet.
The JSA must also continue monitoring thestatus of the introduction and use of the

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

Important Information Sheet among major
financial companies.
Policy for Insurance Supervision
On 31 August 2022, the FSA announced the“The JFSA Strategic Priorities July 2022-June
2023–Overcoming Challenges Confronting the
Financial System and Building Foundation for
Sustainable Growth.” Based on these JFSAStrategic Priorities, the policy of insurance
supervision administration for fiscal year 2022
was formulated as follows.
• In view of the change in medium- and longterm business climate, such as the aging
society, intensifying natural disasters, and theshrinking automobile insurance market, insurance companies are required to:(a) conduct efficient business operations
through digitalisation;(b) build sustainable business models; and(c) develop products catering to the changing customer needs.
• As the insurance companies continue toexpand their business overseas, it is important that they clarify their strategies to incorporate the growth from overseas expansion
and enhance the sophistication of their group
governance.
• The FSA will facilitate the steady progress ofthese initiatives through dialogue, in co-operation with overseas authorities.
• The frequent occurrence of natural disasters
over recent years has resulted in increased
payments of insurance claims, causing a risein the fire insurance premium rates. In particular, in view of the growing interest in therisks associated with surging floods, the FSA
will hold dialogues with the parties concerned
regarding risk-based segmentation of thewater disaster insurance premium rates, aswell as collaborate with them in disseminat17

CHAMBERS.COM

ing risk information to promote water disasterinsurances and in combating fraudulent business capitalising on disasters.
• In response to the environmental changes
referred to above, the FSA will examine thedetails of the economic value-based solvency
regulations while monitoring the progress oforganisational development within insurancecompanies, with a view to achieving seamless
transition to a new policy of soundness basedon the regulations mentioned above.
• In order to prevent product development andsolicitation activities that deviate from theoriginal intent of insurance, such as the saleof insurance products with the primary objective of tax saving (tax avoidance), the FSA
will conduct workable product screening andmonitoring of insurance solicitation throughcloser co-operation with the National Tax
Agency (NTA).
• In light of the recurrent misconduct by inhouse sales representatives, the JSA willencourage insurance companies to build aworkable system for managing sales representatives.
• In co-operation with the local financebureaus, the JSA will hold dialogues with theparties concerned regarding the promotionof insurance solicitation by taking the public insurance system into consideration or
sophistication of the insurance agency management system, so that insurance services
catering to the diverse needs of customers
are readily available.
• With regard to small-amount and short-term
insurance providers, the JSA will work withlocal finance bureaux to review their monitoring methods, identify problems related to theirfinancial strength and appropriateness of theirbusiness operations, and take measures inrespect thereof at an early stage.

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

Chuo Sogo Law Office P.C. specialises in thefollowing insurance matters: legal advice andopinions relating to insurance laws and regulations; incorporations, mergers and acquisitions,company restructurings and liquidations for insurance companies; and litigation, mediation,
ADR and other dispute resolution remedies related to insurance claims and insurance products. Since 2005, the firm has been loaning

its attorneys to work at the Financial Services
Agency (FSA) – an agency overseeing the insurance sector in Japan. This experience has
given Chuo Sogo insights into and a better understanding of the workings of this complex
governmental agency, allowing it to better deal
with complex insurance-related regulations tothe benefit of its clients.

Authors
Hironori Nishikino is a partner at
Chuo Sogo Law Office. His key
practice areas are insurance andreinsurance; advising on
finance-related laws andregulations; advising on
corporate matters, including entity
establishment and organisation, M&A, andbankruptcies and liquidations; andrepresenting insurance companies in legal
disputes concerning financial and insurance
products and services, including judicial
proceedings, mediation, and financial services
ADR. Hironori has been on secondment to theInsurance Business Division of the Supervisory
Bureau of the Financial Services Agency (FSA)in Japan as a fixed-term governmental official.
He has been a member of the JapaneseSociety of Insurance Science since July 2007.

18

CHAMBERS.COM

Koji Kanazawa is a partner at
Chuo Sogo Law Office. His key
practice areas are insurance andreinsurance, banking andfinance, regulatory,
corporate/M&A, and crossborder transactions. Koji is admitted topractise law in Japan and New York. He has
worked as a visiting attorney at Barack
Ferrazano Kirschbaum & Nagelberg LLP,
Chicago, USA and Rodyk & Davidson LLP,
Singapore (currently, Dentons Rodyk). Koji has
been on secondment to the Supervisory
Co-ordination Division of the Supervisory
Bureau of the Financial Services Agency (FSA)(2014–15), and has worked on various
regulatory/compliance issues and dispute
resolutions for the insurance sector. He iscurrently serving as an external statutory
auditor for Rakuten General Insurance Co, Ltd.

JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office P.C.

Chuo Sogo Law Office, P.C.
Hibiya Kokusai Building
18th Floor
2-2-3 Uchisaiwai-cho
Chiyoda-ku
Tokyo 100-0011
Japan
Tel: +81 3 3539 1877
Fax: +81 3 3539 1878
Email: nishikino_h@clo.gr.jp
kanazawa_k@clo.gr.jp
Web: www.clo.jp

19

CHAMBERS.COM

CHAMBERS GLOBAL PRACTICE GUIDES

Chambers Global Practice Guides bring you up-to-date, expert legal
commentary on the main practice areas from around the globe.
Focusing on the practical legal issues affecting businesses, theguides enable readers to compare legislation and procedure andread trend forecasts from legal experts from across key jurisdictions.
To find out more information about how we select contributors,
email Katie.Burrington@chambers.com