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Insurance &ReinsuranceJapanchambers.com

2020

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

Contents
1. Basis of Insurance and Reinsurance Law
1.1

Sources of Insurance and Reinsurance Law

2. Regulation of Insurance and Reinsurance

p.3
p.3

p.3

2.1

Regulatory Bodies and Legislative Guidance

p.3

2.2

The Writing of Insurance and Reinsurance

p.4

2.3

The Taxation of Premium

p.4

3. Overseas Firms Doing Business in thisJurisdiction

p.4

3.1

Overseas-Based Insurers or Reinsurers

p.4

3.2

Fronting

p.4

4. Transaction Activity

p.5

4.1

M&A Activities Relating to Insurance Companiesp.5

5. Distribution
5.1

Distribution of Insurance and Reinsurance
Products

6. Making an Insurance Contract

p.5
p.5

p.6

6.1

Obligations of the Insured and Insurer

p.6

6.2

Failure to Comply With Obligations

p.7

6.3

Intermediary Involvement

p.7

6.4

Legal Requirements and Distinguishing
Features of an Insurance Contract

p.7

6.5

Multiple Insured or Potential Beneficiaries

p.7

6.6

Consumer Contracts or Reinsurance Contracts

p.7

7. Alternative Risk Transfer

p.7

7.1

ART Transactions

p.7

7.2

Foreign ART Transactions

p.7

8. Interpreting an Insurance Contract

p.7

8.1

Contractual Interpretation and Use ofExtraneous Evidence

p.7

8.2

Warranties

p.7

8.3

Conditions Precedent

p.8

9. Disputes

p.8

9.1

Disputes Over Coverage

p.8

9.2

Disputes Over Jurisdiction and Choice of Law

p.8

9.3

Litigation Process

p.8

9.4

The Enforcement of Judgments

p.8

9.5

The Enforcement of Arbitration Clauses

p.8

9.6

The Enforcement of Awards

p.8

9.7

Alternative Dispute Resolution

p.8

9.8

Penalties for Late Payment of Claims

p.8

10. Insurtech

p.8

10.1 Insurtech Developments

p.8

10.2 Regulatory Response

p.9

11. Emerging Risks and New Products

p.9

11.1 Emerging Risks

p.9

11.2 New Products or Alternative Solutions

p.9

12. Recent and Forthcoming Legal Developments
p.9
12.1 Developments Impacting on Insurers or
Insurance Products

13. Other Developments
13.1 Additional Market Developments

p.9

p.10
p.10

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

1. Basis of Insurance and Reinsurance
Law
1.1 Sources of Insurance and Reinsurance Law

The Insurance Business Act is the basis for 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 wheninterpreting insurance contracts.

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

The Financial Services Agency (FSA) is the regulatory authority for insurance and reinsurance businesses in Japan. Life andnon-life insurers are regulated by the Insurance Business Act.
Reinsurers are regulated in the same way as non-life insurers.
Based on the Insurance Business Act, the regulatory authorities
have the power to issue administrative dispositions to insurancecompanies, including orders for business improvement, orders
for suspension of business, and/or orders for cancellation oflicenses.
In fact, broad discretion is given to the regulatory authorities,
and those administrative dispositions against insurance companies invoked by the regulatory authorities are not necessarily
based on the assumption that violations of law by insurancecompanies have taken place.
Against this background, entities targeted for supervision not
only have to make sure that laws and regulations are being
observed but must also follow the guidelines officially promulgated by the regulatory authorities (Comprehensive Guidelines
for the Supervision of Insurers).
Underwriting life insurance and non-life insurance entails
obtaining the necessary business licenses from the regulatory authorities. Such licenses for life insurance and non-life
insurance business cannot be acquired by the same company,
and companies are prohibited from running both businesses
concurrently. However, both life insurers and non-life insurers
are at liberty to offer insurance such as medical care insurance,
accident insurance, or overseas travel accident insurance, ie,
insurance from the so-called “third sector” insurance market.
Nevertheless, life insurance companies – whether operating in
the form of a kabushiki kaisha or mutual company – must haveboard of directors’ meetings, auditors’ meetings, audit and othercommittee meetings, and meetings such as nominating committee meetings, and accounting auditors. Foreign companies

3

intending to enter into the Japanese market through their subsidiaries are required to acquire the licenses mentioned above.
Foreign companies planning to enter through their branch
offices must obtain foreign insurer’s licenses.
During the license application procedure, the so-called “basic
documents” (articles of incorporation, business plan, standard
policy provisions and documents showing the method to calculate insurance premiums and policy reserves) are required tobe submitted to the regulatory authorities. Furthermore, insurance companies cannot operate their businesses while being inviolation of the basic documents, and, in order to develop andoffer new insurance products, must procure approval for corresponding changes to the basic documents from the regulatory
authorities (“Insurance Product Approval” – regular processing takes 90 days, standardised 45 days). However, regarding
certain types of insurance, such as 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 procedures that special provisions related to business insurance are
to be established or modified without notifications (“Flexible
Provision System”).
Insurance companies are not permitted to conduct any businessother than the insurance business (underwriting insurance) andbusiness incidental thereto (restriction on other business). Furthermore, insurance companies are not allowed to own subsidiaries that perform businesses other than as legally stipulated, or obtain voting rights in domestic companies in excess
of 10% of their total voting rights. However, with the approvalof 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 secure soundness of operations and appropriate
management. The minimum amount of capital of an insurancecompany is JPY1 billion.
Insurance companies are required to accumulate policy reserves
and it is necessary for them to appoint an insurance administrator with a predetermined actuary’s license who gets involved inwork 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 early corrective actions with broad supervisory
reach against targeted companies, including orders to submit an
improvement plan. At present, the solvency margin ratio on aconsolidated basis has been introduced. Field tests of economic
value-based solvency regime have been conducted three times

Law and Practice JAPANContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office, P.C

in the past, and the most recent field test (the results of whichwere announced in March 2017) was conducted in accordancewith the ICS field test specifications of IAIS (as of June 2016).
The European Union announced in March 2016 an adoptionof the equivalence recognition between Solvency II with temporary equivalence and the Japanese reinsurance supervisionand group solvency. On 31 May 2019, the Financial Services
Agency established the Advisory Council on Economic ValueBased Solvency Regulations, which consists of external advisors.
At present, the Council is considering how the domestic regulations could be changed in the future based on international
discussions.

2.2 The Writing of Insurance and Reinsurance
See 2.1 Regulatory Bodies and Legislative Guidance.

2.3 The Taxation of Premium
No information is available.

3. Overseas Firms Doing Business inthis Jurisdiction
3.1 Overseas-Based Insurers or Reinsurers

Under the Insurance Business Act, the regulations that apply to
Japanese insurance companies also apply to local subsidiaries
of overseas-based insurers. Nevertheless, the Act allows foreign
insurance companies to conduct insurance business withoutestablishing such local subsidiaries.
Foreign insurance companies may conduct insurance business in Japan only if they have opened a branch in Japan andobtained the applicable license from the FSA, the body overseeing insurance companies (Article 185-1 of the Insurance Business Act). This requirement allows the FSA to effectively executeadministrative 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 in Japan, property
located in Japan, or vessels or aircrafts with Japanese nationality
inside Japan. The procedure to apply for the license is mostly thesame 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 the deposit
office to protect policyholders.
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 Business Act) other than theinsurance contracts listed below:• Reinsurance contracts;• Marine insurance contracts pertaining to objects such as
vessels with Japanese nationality used for international
maritime transportation;• Aviation insurance contracts pertaining to aircrafts withJapanese nationality used for commercial aviation;• Insurance contracts pertaining to launching into outerspace;• Certain insurance contracts covering cargo located within
Japan which is in the process of being shipped overseas; and• Overseas travel insurance.
The restriction does not apply when an applicant wishing topurchase 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 policyholders’benefit to purchase insurance products that are most beneficial
to them. 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 for comparable insurance products
on equal or more advantageous conditions;• The terms and conditions of the insurance product in question are significantly unbalanced compared to the typicalterms and conditions of the same type of insurance productswith licensed Japanese or foreign insurers;• 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 businessor be harmful to the public interest.
In a recent trend, the government of Tokyo is pursuing a policy
to attract overseas financial business providers to the Japanesemarket by providing assistance to cope with complicated financial 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
the Tokyo financial markets.

3.2 Fronting

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

4

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

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

Existing insurance businesses may be acquired in several ways,
such as through obtaining shares of Japanese insurance companies, a merger of insurance companies, or sale and purchaseof insurance business. The Insurance Business Act provides aregulatory framework for these M&A activities of insurance
businesses.
Under the Japanese regulatory framework, shareholders who
own a certain percentage of voting rights in insurance companies are subject to oversight of the regulator.
• 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 acquisitionof such voting rights (Insurance Holding Company; Article
271-18-1 of the Insurance Business Act). Insurance holding
companies are subject to strict regulations including thoseregulating the scope of business and imposing subsidiary
restrictions, and, in certain instances, reporting obligations.
As of 26 March 2019, 14 insurance holding companies havebeen approved by the FSA.
• Except for insurance holding companies, a shareholder with
20% or more voting rights in an insurance company needs
approval from the FSA in advance of acquisition of suchvoting rights (Major Shareholder of Insurance Companies;
Article 271-10-1). Such approval is required even if theinvestor 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, onemonth) to the FSA (Shareholders with Large Voting Rights
in Insurance Company; Article 271-3-1 of the Insurance
Business Act). Such shareholder has to submit a report if theshareholder’s percentage of voting rights changes by 1% ormore (either as an increase or decrease). The FSA may takeadministrative dispositions against shareholders with large
voting rights in an insurance company if the FSA finds thereport submitted includes false, or lacks important or necessary information, thus causing potential misunderstanding.
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:

5• The merger is appropriate in light of the protection ofpolicyholders;• The merger will not hinder fair competition among insurance companies; and• It is certain that the surviving insurance company after themerger will be capable of operating the insurance businessappropriately, fairly and effectively.
A sale and purchase of insurance business also requires approval
from the FSA pursuant to Article 142 of the Insurance BusinessAct. Purchasers of insurance businesses must be licensed insurance companies. Such sale and purchase also requires a separate
approval to transfer insurance contracts from the FSA pursuant to Article 139 of the Insurance Business Act. Petitions forapproval to transfer insurance contracts are reviewed according
to the following standards/checkpoints:• The transfer of insurance contracts is appropriate in light ofthe protection of policyholders;• It is certain that the transferee will be capable of 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 require policyholders’ approvals for transfers of insurance contracts to anotherinsurance company. Instead, the transferor must make a public
notice and notify each policyholder, and provide policyholdersa chance to file objections to the transfer.

5. Distribution
5.1 Distribution of Insurance and Reinsurance
Products

Unless otherwise allowed by any other law, the Insurance Business Act prohibits any person from acting as an agent or intermediary to conclude insurance contracts, an activity that falls
within the definition of “insurance solicitation” under the Act.
In the case of a life insurance company, only registered life
insurance agents (officers and employees 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 high rate of salespeople whohave long belonged to those companies (mostly women employees known as “Sei-ho ladies”) among their overall salespersons.
Put simply, every person selling insurance contracts has to beregistered to do so. In principle, in the current legal system, life
insurance agents may deal with insurance products of only one
insurance company. In other words, they operate within theLaw and Practice JAPANContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office, P.C

so-called “one-company exclusive system”. However, by fulfilling the prescribed legal requirements (such as enrolling two
or more life insurance agents) it is possible to deal with insurance products of multiple insurance companies – in fact, quite
a number of independent agencies currently do this.

Insurance sales through banking channels in Japan commenced
in 2001 but the number of products they could sell was severely
restricted. The range of insurance products available for sale bybanks has since expanded multiple times, and the restrictions
were totally removed in 2007.

The situation involving non-life insurance companies (including a reinsurance company) is as follows:• Banks function as insurance agents in the selling process.
In this respect it is worth mentioning that 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’ informationgathering ability in relation to customers’ funds or theirimproper influence over customers.
• Strict regulations have been imposed on banks, including measures/regulations for the protection of non-public
information (pursuant to which customer information
obtained through their banking business cannot be used inconnection with insurance solicitation without customers’
consent) or the regulations concerning soliciting of borrowers (where certain types of insurance products cannot besold to customers who are granted business loans). Whilethese additional regulations have been imposed for theprotection of consumers, in essence they function to protect
the traditional channels of insurance distribution.

• It is recognised that officers (other than auditors) andemployees of a non-life insurer may engage in “insurance
solicitation,” not only without being registered but also,similarly to officers and employees of below-mentioned
non-life insurance agencies, without any obligation to givenotice thereof. In many cases employees of a non-life insurance company engage in “non-face-to-face” offerings of theirproducts (by such means as telephone, mail or internet)
and tend to transfer business opportunities with large-scalecompanies to their head office for handling.
• Registered non-life insurance agencies as well as their officers (with the exception of auditors) and employees may
engage in “insurance solicitation”. No officers or employeesof non-life insurance agencies are required to be registered;however, they are required to give notice of such a fact.
The majority of non-life insurance sales are carried out byagencies, which account for 91.4% of the total on a direct-netpremiums-written basis, while sales by officers and employees of
insurance companies (through their direct sales) and insurance
brokers account for only around 8.0% and 0.6% respectively.
Dedicated insurance agencies account for 19% (based on thenumber of entities involved) of non-life insurance agencies.
Around 51% of non-life insurance agencies involved in anotherbusiness are automobile dealers/repair shops, and around 11%
are entities within the real estate industry – with both figuresindicating high ratios.
Registered insurance brokers may also engage in “insurance
solicitation” (limited to mediating conclusions 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 commencement of
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 dutyof loyalty (the duty of “best advice”), and other special duties
that have not been imposed on insurance agents. The number of
insurance brokers in Japan is comparatively low (48 companies).
While most of them focus on large-scale businesses, handling
products for consumers is extremely rare.

Recently, “open-for-visitor” agencies have strengthened theirpresence. Out of the insurance products of multiple insurancecompanies, these agencies make – on their own initiative – proposals of insurance products that conform to customers’ actual
needs, which open-for-visitor agencies call consultative selling.
In order to regulate such a business scheme, the “comparative
recommendation” regulation has been introduced.

6. Making an Insurance Contract
6.1 Obligations of the Insured and Insurer

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
the question).
This is a unilaterally mandatory provision (a provision thatmakes void those agreements that, contrary to this provision,
adversely affect policyholders); 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
arising from business activities conducted by a juridical person or some other organisation or an individual who operates
a business is excluded from the scope of the application of theforegoing provision.

6

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

6.2 Failure to Comply With Obligations

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

6.3 Intermediary Involvement

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

6.4 Legal Requirements and Distinguishing
Features of an Insurance Contract

Insurance contracts may be concluded verbally but, in practice,
it is commonly done in writing so that the conditions of thecontracts are clarified. The existence of insured benefits (economic benefits that may be disadvantaged by the occurrence of
insured events) is required as a condition to effectuate a nonlife 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 of insured benefits tends to be applied
fairly moderately and flexibly.

6.5 Multiple Insured or Potential Beneficiaries

Where there are multiple insureds in a non-life insurance contract, the Insurance Business Act does not stipulate the superiority/inferiority between each insured.

6.6 Consumer Contracts or Reinsurance
Contracts
No information is available.

7. Alternative Risk Transfer
7.1 ART Transactions

It should be determined based on the content of the productwhether such product is subject to Japanese regulation. Certain
products may be subject to regulation as reinsurance products.
In June 2018, an interim report of the Financial System Study
Group was published, indicating the need to consider a functional financial regulatory system. In this report, it was pointed
out that “Credit guarantees, derivative transactions and insurance have functionally similar aspects. However, there are no
special business regulations for credit guarantees, and engage-

7

ment in derivative transactions business are subject to registration. On the other hand, insurance businesses are subject tolicense requirement and are required to obtain approval on each
insurance product from the competent authorities”. It is possiblethat function-based regulations will be introduced in the future,
and attention should be paid to future discussions.

7.2 Foreign ART Transactions
No information is available.

8. Interpreting an Insurance Contract
8.1 Contractual Interpretation and Use ofExtraneous 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 and customers that differ
from explicit policy conditions, taking into consideration theway in which insurance companies and customers negotiatedand concluded their insurance contracts, and seek 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
not paid);• 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 and refunds thereof;• cooling-off procedures;• matters concerning the notification to be made 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

No information is available.

Law and Practice JAPANContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office, P.C

8.3 Conditions Precedent
No information is available.

9. Disputes
9.1 Disputes Over Coverage

Insurance disputes are generally resolved in district courts orsummary courts, depending on the value of the dispute. There
are no special courts for resolving commercial insurance disputes and therefore the same procedure is applicable to bothconsumer contracts and reinsurance contracts. In practice, ajurisdiction clause in an insurance policy determines which
court will hear disputes in relation to the insurance policy.

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

9.3 Litigation Process

Generally, a first hearing date is scheduled around one monthafter the filing of a lawsuit. It usually takes six months to one
year to reach a judgment.
The losing party may appeal to the upper court based on any
grounds if such party is not satisfied with the decisions of thecourt of first instance. There are two stages of appeal.

9.4 The Enforcement of Judgments

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

9.5 The Enforcement of Arbitration Clauses
No information is available.

9.6 The Enforcement of Awards

The Arbitration Act provides that an arbitration agreement
must be in writing but does not require that any specific words
be put into writing. Parties to the arbitration may not appeal tothe courts from the decision of the arbitral tribunal. However,the Arbitration Act provides that the parties may file a petition
to set aside the arbitral award to the court in some situations,such as invalidity of the arbitration award due to the limited
capacity of a party. Japan is party to the New York Convention,
and arbitration awards received in the member countries canbe enforced in Japan.

9.7 Alternative Dispute Resolution

Insurance ADRs are common especially in the field of consumer
contracts. An increasing number of insurance related disputes
are resolved through ADRs.

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; 5%
per annum for non-commercial claims and 6% per annum forcommercial claims. A revision of those interest rates to 3% perannum with subsequent reviews every three years to reflectmarket interest rates will be introduced from 1 April 2020.

10. Insurtech
10.1 Insurtech Developments

In Japan, the emergence of fintech was most pronounced in
the banking sector at first. Indeed, the Japanese government
first responded to fintech by amending the Banking Act so thatbanks could own technology companies as their subsidiaries,
which was previously restricted to some extent (the “Amended
Banking Act”). The Amended Banking Act came into force on
1 April 2017.
Japanese insurance companies are gradually adopting new technologies such as IoT (Internet of Things), Big Data and Artificial Intelligence to their services. For example, Tokio Marine &Nichido Anshin Life Insurance Co Ltd has introduced a medical
insurance policy where an insured might obtain cash back of
insurance fees if he/she walked daily a certain number of steps
on average. The insured would be required to use a wearable
instrument to monitor their activities and record their healthdata. Another example is Sony Assurance Inc’s automobile
insurance, where an insured has a “driving counter” installedin their car. Such driving counter monitors the insured’s driving
and, if it shows safe driving on the part of the insured, the insurer will give the insured cash back toward the insurance fees.
Insurance companies alone may not be able to create new
insurtech products because they do not have enough resources/
knowledge to develop new technology. An alliance with techcompanies or telecom companies is therefore necessary. Another question has been whether insurance companies are allowed
to own tech companies or telecom companies as their subsidiaries to take full control of the new technologies. In response, anamendment to the Insurance Business Act, due to come into
force by June 2020, was enacted, allowing insurance companies
to own technology companies as their subsidiaries, similar tobanks under the Amended Banking Act.

8

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

The FSA regards the fintech trend quite positively. One example
of such positive attitude of the FSA can be seen in the Fintech
Support Desk, which was established to provide a streamlined
process for fintech businesses. Indeed, the FSA appears to bewatching developments regarding insurtech with a high degreeof interest.

from life insurance to products covering living costs when theinsureds become unable to work, reflecting increased longevity.

10.2 Regulatory Response

12.1 Developments Impacting on Insurers or
Insurance Products

See 10.1 Insurtech Developments.

11. Emerging Risks and New Products
11.1 Emerging Risks

Cyber-attacks have come to pose a severe and present risk,
which Japanese companies have to cope with. Even thoughcountermeasures are being introduced, they can easily be rendered ineffective. The Ministry of Economy, Trade and Industry of Japan (the METI) issued the Cybersecurity Management
Guideline, which clarifies that cybersecurity is a business challenge and that Japanese companies have to take appropriate
protective actions. To respond to such situations, insurancecompanies have developed insurance products to cover thecosts of information leakage or damages caused by a cyberattack. However, considering the survey conducted by the General Insurance Association of Japan in 2018 showing that only
12% of respondents have purchased cyber-insurance, the cyberinsurance market in Japan still has enough room to grow.

11.2 New Products or Alternative Solutions

With advancements in autonomous car technology, it is being
debated who should bear legal responsibilities in case of accidents involving self-driving cars. A project team of the General
Insurance Association of Japan published a paper discussing
legal responsibilities involving autonomous driving in June
2016. In the paper, the project team gave its opinion that thecurrent legal framework is basically applicable to level 3 autonomous driving, where an automated driving system performs
entire driving tasks with the expectation that human drivers
will respond appropriately to a driving system’s request tointervene. Tokio Marine & Nichido Fire Insurance Co Ltd has
added protection to cover accidents arising from malfunctionsin autonomous driving systems in order to provide prompt relief
to victims of such accidents.
Increased longevity may affect the strategy of insurance companies. Recently, the Institute of Actuaries of Japan published theStandard Longevity Table 2018 (previously amended in 2007),
indicating significant decreases of projected death rates. With
this trend, it is reported that insurance companies will lower fees
for life insurance by 5%-10% for newly entered insurance contracts. It is also reported that demand is gradually shifting away

9

12. Recent and Forthcoming Legal
Developments
A recent revision of the Insurance Business Act (which cameinto force in May 2016) has significantly impacted the practice of sales and solicitation of sales of insurance products byinsurance companies or insurance agents. What follows outlines
sequentially the newly enacted duties that have been imposedon or become applicable to insurance agents as a result of thatrevision, with the most influential ones being the duty to confirm a customer’s intent, the duty to give “comparative recommendation”, and the duty to establish a management system of
insurance agents.
When soliciting sales of insurance products to customers, insurance agents are legally required, as part of the “duty to confirm
customer’s intent”, to:• confirm the customer’s intent;• make sale proposals in light of such intent;• explain the details of the insurance products in light of that
intent; and• offer the customer a chance to confirm whether the contentsof the insurance product matches their intent at the time of
the conclusion of an insurance contract.
The methods to confirm customers’ intent are, depending on theform of the offer and the product, within the province entrusted
to the ingenuity of insurance companies and insurance agents,
and are provided by the law as general obligation provisions(“principles”), while concrete methods in connection with theperformance of their “duty to confirm customer’s intent” aregoverned in more detail by the “Comprehensive Guidelines
for Supervision of Insurance Companies”. In fact, the practicaloperations of soliciting sales of insurance are bound by those
Guidelines. With the introduction of said duty, insurance agentsare required to provide a personalised response concerning theintention of consumers at each stage of solicitation of sales of
insurance products, which in turn has led to changes in theirpractical operations with respect to solicitation of sales and theforms they obtained from customers such as insurance applications, etc. In order to conduct subsequent verification of appropriate responses in line with the regulations mentioned above,it became more important to deliberately record details of thesolicitation of sales.

Law and Practice JAPANContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office, P.C

The “comparative recommendation” regulation applies in cases where insurance agents select and offer certain insurance
products from a number of comparable and similar insurance
products belonging to multiple insurers. Typical subjects of theregulation are independent agencies that utilise consultative
selling of insurance products.
• The content of said regulation varies depending on whether
to go along with the customer’s intent in selecting theinsurance products mentioned above. In other words, theselection of products is determined either through consultative sales or by considering factors other than the customer’s
specific intent, such as the agent’s convenience.
• In the latter case, insurance agents are obligated to explain
the reasons why they recommend such product, for example, capital connections with an insurance company developing the product or business policy. However, the degreeof explanation required in accordance with the regulation
is not necessarily very high. With proper and reasonable
justification of their position, insurance agents are allowed
to select insurance products based on their business policy
and not the customer’s intent.
• In the former case, on the other hand (taking into accountthe customer’s intent in the selection of an insurance product), insurance agents are required to:(a) show outlines of insurance contracts that are comparable and similar as well as compatible with thecustomer’s intent from among the available productrange; and(b) provide an explanation of reasons for the recommendation.
• Regarding item (a), in particular, each pamphlet of an insurance product needs to show a product outline column, andfor that purpose appropriate choices of insurance products
must be presented to customers to give them freedom tomake their own choice.
• Regarding item (b), it is legally required for insurance agentsto go beyond explanations of the insurance product during
the selling process and to offer customers advice on why
to choose a particular product. Insurance agents engaged
in consultative sales have traditionally given explanationsof reasons for their recommendations of products as their“service”; nowadays, however, this is required by the regulation in order to ensure the quality and accuracy in a more
systematic manner.
Recently, there have emerged insurance agents that have largescale agencies with hundreds of locations that can suggest in
their discretion insurance products relevant to their customers’ needs from among products of multiple insurance companies. In such a situation, it becomes increasingly difficult
for a single insurance company to grasp and control the entire

scope of duties of insurance agents, which was the traditional
assumption behind the Insurance Business Act, but may notnecessarily be adequate any more. Based on the diversification
relating to such insurance companies and insurance agents, aduty to establish a management system has been imposed on
insurance agents in connection with insurance solicitation toensure business soundness and proper management. The goalof such a duty is to provide information to customers, handle
customer information, manage consignees, give explanations
in connection with comparative-recommendation sales, andeducate, supervise and coach franchisee agencies by franchisor
agencies. The introduction of such duty entails the self-checking
function of insurance agents, such as maintaining proper governance within agents (decision-making, enactment of internal regulations, etc), following the PDCA cycle, or conducting
internal audits. Furthermore, how to make this management
system function efficiently and properly to its fullest extent andaccording to its characteristics has become a question of practical concern.

13. Other Developments
13.1 Additional Market Developments

General Principles of Customer-Centric Business
Operation (Trend to Disclose Agency Fees)
On 30 March 2017, the Financial Services Agency published the“General Principles of Customer-Centric Business Operation”.
If financial undertakers running a financial company attempt
to adopt these general principles (although it is up to financial
undertakers whether to adopt them, in practice, however, it isdifficult for insurers to choose not to do so), they are required,for example, to develop and make public clear guidelines toachieve the customer-centric business operation and thenregularly make public announcements on how their efforts inrelation to such guidelines are progressing. These general principles contain an item that requires the disclosure of information
relating to the “concrete contents (including fees received fromthird parties and other information) of any possible conflict ofinterest with a customer in connection with financial products
or services to be sold, suggested or otherwise presented to thecustomer as well as the resulting impact on its trade and business”. As a result, the question as to whether insurers or insurance agencies will end up publishing their agency fees has drawn
considerable attention. Although at present nothing suggeststhat they will, many banking channels (financial institutions)have disclosed the agency fees relating to insurance productswith strong investment characteristics on a voluntary basis sincearound the summer of 2016.

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

Impact of amendment to the Civil Code on Liability
Insurance
The amended laws of the Civil Code, which contain private general laws of Japan, were enacted on 26 May 2017 and publicly
announced on June 2nd of the same year. The amended Civil
Code is to come fully into force on 1 April 2020. Previously, a
5% statutory interest rate was adopted in the Civil Code. In theamended Civil Code, however, a fluctuating rate is applicable,
in which the rate of 3% applies the first year and the subsequent
rate is subject to change every three years on the basis of theshort-term loan rate. In the case of compensation for damages
suffered in traffic accidents or similar events, the amount ofinterest accrued at a given point in time is deducted from theloss of prospective profits when the damages for death or secondary diseases are calculated. In civil matters, a statutory rateof interest was established by the Supreme Court of Japan andhas been adopted. It is predicted that the lower rate effectuatedby the amendment of the Civil Code will increase the amount ofdamages. Note that the amended Civil Code makes it clear thatthe statutory rate of interest at the time of the emergence of theright to seek damages is adopted as the rate for interim interest
deduction. After the enforcement of the amended Civil Code,it is expected that claims paid under damage liability insurance
will increase and the management of non-life insurers will beaffected by the amendment by, among other things, the necessity to raise insurance premiums.
Policy for Insurance Supervision
According to “User-Centered financial services for the new era
Previous practice and policies for the future of financial services”, published by the Financial Services Agency on 28 August
2019, the policy of Insurance Supervision Administration for2019 fiscal year is as follows:
Establishment of customer-oriented business management• Need to understand the customer’ intentions appropriately,
propose the best products, and obtain the customer’s understanding through careful (and courteous) explanations at
the place where insurance is sold.
• Monitoring reveals that complaints regarding foreign
currency-denominated insurance are on the increase; inparticular, a significant number of cases have been attributed to sales to customers who did not fully understand thecontents of the insurance products sold.

11• Increasing need to confirm the state of maintenance anddevelopment of product objectives, prospective customers,
insurance sales management, etc.
• Comprehensive monitoring of what discussions are taking
place and what efforts are being taken at the managementlevel.
Establishment of a sustainable business model• It is important to respond to changes in the risks accompanying changes in insurance needs due to increased burdensof medical and nursing care associated with longer lifestyles,
advances in digitisation, and the escalation of natural
disasters.
• Focusing on upgrading the risk management systems of
insurance companies in response to risk changes involving
the increase of natural disasters, such as the frequent occurrence of large-scale wind and flood disasters in recent years.
• Promoting of sophisticated monitoring through discussions
at advisory meetings on new solvency regulations based on
economic value.
Fulfilment of governance functions• Fulfilment of governance functions across management isnecessary to address the above-mentioned issues.
• During the monitoring process referenced above, close
attention should paid to whether the Board of Directors
holds in-depth discussions toward making important management decisions.
• In particular, the monitoring should look into whether the
Board of Directors plays an effective role in the managementof overseas subsidiaries.

Law and Practice JAPANContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office, P.C

Chuo Sogo Law Office, P.C. specialises in the following insurance matters: legal advice and opinions relating to insurance
laws and regulations; incorporations, mergers and acquisitions, company restructurings and liquidations for insurancecompanies; and litigation, mediation, ADR and other dispute
resolutions involving insurance claims and insurance products.
Since 2005, the firm has been loaning its attorneys to work at

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

Authors
Hironori Nishikino is a partner at thefirm. His key practice areas are: insurance
and reinsurance with special expertise in
the Insurance Business Act; advising on
finance-related laws and regulations,
including the Banking Act, the Financial
Instruments and the Exchange Act, andthe Money Lending Business Act; advising on corporate
matters, including entity establishment and organisation,
M&As, and bankruptcies and liquidations; and representing
insurance companies in legal disputes concerning financial
and insurance products and services, including judicial
proceedings, mediation, and financial services ADR. Hironori
was on loan to the Insurance Business Division of theSupervisory Bureau of Financial Services Agency (FSA) in
Japan as a fixed-term governmental official (April 2005 to May
2007), during which time he served in the Legal Compliance
Research Office. He has been a member of the JapaneseSociety of Insurance Science since July 2007.

Koji Kanazawa is a partner at the firm. His
key practice areas are: insurance andreinsurance; banking and finance;
regulatory; corporate/M&A; andcross-border transactions. Koji is admitted
to practise law in Japan (2004) and New
York (2013). He has worked as a visiting
attorney at Barack Ferrazano Kirschbaum & Nagelberg LLP,
Chicago, USA and Rodyk & Davidson LLP, Singapore(currently, Dentons Rodyk). Koji was also on secondment at
the Supervisory Co-ordination Division of the Supervisory
Bureau of Financial Services Agency (FSA) as a fixed-term
government official (January 2014 to December 2015); heworked on various regulatory/compliance issues and dispute
resolutions for insurance sector.

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
Web: www.clo.jp

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