Contributing Firm

Chuo Sogo Law Office

The Legal 500 Country
Comparative Guides
Japan: Insurance & ReinsuranceThis country-specific Q&A provides an overview toinsurance & reinsurance laws and regulations that may
occur in Japan.
For a full list of jurisdictional Q&As visit here

Authors
Hironori Nishikino
Partner
The Legal 500
nishikino_h@clo.gr.jp
Koji Kanazawa
Partner
The Legal 500
kanazawa_k@clo.gr.jp

1. How is the writing of insurance contracts regulated in your jurisdiction?
Writing of insurance contracts is regulated by the Insurance Business Act and the Financial
Services Agency (the “FSA”) supervises insurance companies. Oﬀering new insurance
products requires approval from the FSA, (“Insurance Product Approval” – regular processing
takes 90 days, standardised 45 days). However, regarding certain types of insurance where
there is little fear of insuﬃcient policyholder protection, such as ﬁre insurance, a notiﬁcation
system to the regulatory authorities has been adopted, although 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”).
2. Are types of insurers regulated differently (i.e. life companies, reinsurers?)
Life insurers and non-life insurers are both regulated by the Insurance Business Act.
Reinsurers are regulated in the same way as nonlife insurers. Engaging in the underwritingof life insurance and non-life insurance entails obtaining from the regulatory authorities a life
insurance business licence and a non-life insurance business licence, respectively. Companies
may not run both businesses concurrently
3. Are insurance brokers and other types of market intermediary subject toregulation?
Unless otherwise permitted by any other laws, the Insurance Business Act prohibits any
person from acting as an agent or intermediary to solicit insurance contracts, an activity
which falls under the deﬁnition of “insurance solicitation” under the Act.
In the case of a life insurance company, only registered life insurance agents (ie, oﬃcers andemployees of a life insurer; or life insurance agencies (agents) as well as their oﬃcers,
employees and other personnel) may conduct “insurance solicitation.” In principle, in thecurrent legal system, life insurance agents operate within the so-called “one-company
exclusive system”, meaning they may deal with the insurance products of only one insurancecompany. However, by fulﬁlling the prescribed legal requirements (such as enrolling two or
more life insurance agents), it is possible to deal with the insurance products of multiple
insurance companies, with quite a number of independent agencies currently doing so.
The situation involving non-life insurance companies (including reinsurance companies) is asfollows:
Oﬃcers (other than auditors) and employees of a non-life insurer may engage in“insurance solicitation” without being registered nor any notice thereof.
Registered non-life insurance agencies as well as their oﬃcers (with the exception ofauditors) and employees may engage in “insurance solicitation.” No oﬃcers or
employees of non-life insurance agencies are required to be registered, but they arerequired to give notice of such a fact.
Registered insurance brokers may also engage in “insurance solicitation” (limited tomediating 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 payment can beexchanged for an insurance brokers’ liability insurance policy), the duty to disclose fees andcommissions, 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.
4. Is authorisation or a licence required and if so how long does it take on average toobtain such permission? What are the key criteria for authorisation?
Engaging in the underwriting of life insurance and non-life insurance entails obtaining fromthe regulatory authorities a life insurance business licence and a non-life insurance businesslicence, respectively. The FSA endeavors to complete its review of license application
procedures within 120 days after a license application reaches to the FAS (which is astandard processing period under Article 246 of the Order for the Enforcement of the
Insurance Business Act). An insurers who lay out a plan for obtaining a license, however,cannot normally rely on this standard
processing time, ﬁrst, because it only obligates the FSA to make an eﬀort to meet that
deadline, and second, because their negotiations with the FSA begin by an exchange of drafts
preceding in the formal ﬁlling of documents for the license application – in fact, it is common
that no formal documents for the license application are ﬁled before obtaining an
acknowledgement from the FSA.
The key criteria for licencing under the Insurance Business Act are, among other things, as
follows:
i the person filing application for the insurance licence has a sufficient financial basis toperform insurance services soundly and efficiently, and has good prospects for income andexpenditures in connection with those services;
ii in light of such points as its personnel structure, the applicant has the knowledge andexperience to perform insurance services appropriately, fairly, and efficiently, and has
sufficient social credibility;iii the contents of the insurance contracts have no risk of lacking in protection for thepolicyholders, the persons to be insured, beneficiaries of insurance proceeds, and otherrelevant persons;iv no specific persons are subject to unfair or discriminatory treatment under the contents of

the insurance contracts;v the contents of the insurance contracts pose no risk of encouraging or inducing conductthat is harmful to public policy and good morals;vi the rights and obligations of the Policyholders, etc. and other contents of the insurance
contracts are specified clearly and simply for the Policyholders, etc.;
vii the calculation procedures for insurance premiums and policy reserves are reasonable andproper, based on actuarial science; andviii no specific persons are subject to unfair or discriminatory treatment with regard to
insurance premiums.
5. Are there restrictions or controls over who owns or controls insurers (including
restrictions on foreign ownership)?
Under the Japanese regulatory framework, shareholders who own a certain percentage ofvoting rights in insurers are subject to oversight by the regulator.
• A shareholder with more than 50% voting rights in an insurance company is required toobtain approval from the FSA in advance of acquiring 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 business and imposing
subsidiary restrictions, and, in certain instances, reporting obligations.
• Apart from Insurance Holding Companies, a shareholder with 20% or more voting rights in
an insurance company requires approval from the FSA in advance of acquiring such voting
rights (Major Shareholder of Insurance Companies; Article 271-10-1), even if such 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 toreport the acquisition of such voting rights to the FSA within ﬁve days (or one month in thecase of foreign investors) (Shareholders with Large Voting Rights in Insurance Company;
Article 271-3-1 of the Insurance Business Act). That shareholder has to submit a report if
their percentage of voting rights changes by 1% or more (either as an increase or decrease).
The FSA may take administrative dispositions against Shareholders with Large Voting Rights
in an Insurance Company if it ﬁnds that the submitted report includes false information, or
lacks important or necessary information, thus causing a potential misunderstanding.
6. Is it possible to insure or reinsure risks in your jurisdiction without a licence orauthorisation? (i.e. on a non-admitted basis)?
For the following insurance contracts, foreign insurers may conclude insurance contracts
without obtaining the applicable license:
1. Reinsurance contracts;
2. Marine insurance contracts pertaining to objects such as vessels with Japanese nationality
used for international maritime transportation;
3. Aviation insurance contracts pertaining to aircrafts with Japanese nationality used forcommercial aviation;
4. Insurance contract pertaining to launching into outer space;
5. Certain insurance contracts covering cargo located within Japan which is in process of
being shipped overseas; and6. Overseas travel insurance.
7. What penalty is available for those who operate in your jurisdiction without
appropriate permission?
A person who engages in the business of insurance without a license is subject to punishment
by imprisonment with work for not more than three years or a ﬁne of not more than
3,000,000 yen (cumulative imposition thereof as the case may be) (Article 315, item 1 of the
Insurance Business Act).
8. How rigorous is the supervisory and enforcement environment? What are the key
areas of its focus?
Based on the Insurance Business Act, the regulatory authorities have the power to issueadministrative dispositions to insurance companies, including orders to change the basic
documents, orders for business improvement, orders for suspension of business, or orders forcancellation of a licence. In fact, a broad discretion has been given to the regulatory
authorities, and those administrative dispositions against insurance companies invoked by theregulatory authorities are not necessarily based on the assumption that violations of law by
insurance companies have taken place. With that as a background, entities targeted forsupervision 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; the “Guidelines”).

In the “Financial Services Policy: Assessments and Strategic Priorities 2019” (August 28,2019), JFSA focused on the following areas for supervision:
1. Solicitation for should not place too much emphasis on the contents of other than theoriginal functions of insurance; for foreign currency-denominated insurances, insurers should
ensure an appropriate product design and insurance sales management system taking into
account customers’ financial literacy, age, asset ownership, and other factors;
2. By way of product examinations, JFSA will monitor the readiness of insurers in terms of theaims and prospective customer segments of the products, and insurance sales management.
3. The understanding of the actual state of digitalization;
4. Promoting advanced risk management among insurance companies;
5. Reviewing the economic value-based evaluation and supervisory method for the assets andliabilities of insurance companies; and6. Encouraging insurance companies to exercise their governance functions.
9. How is the solvency of insurers (and reinsurers where relevant) supervised?
Insurance companies are required to accumulate policy reserves and appoint an insurance
administrator with a predetermined actuary’s license, who gets involved in work related toactuarial science.
Regulations on the solvency margin ratio were introduced in 1996, and the solvency marginindex has become an assessment standard for the supervisory authorities to execute earlycorrective actions, with broad supervisory reach against targeted companies, includingorders to submit an improvement plan. The solvency margin ratio has been introduced on aconsolidated basis.
Field tests of economic value-based solvency regimes have been conducted three times in thepast, and the most recent ﬁeld test – the results of which were announced in March 2017 –was conducted in accordance with the ICS ﬁeld test speciﬁcations of IAIS (as of June 2016).
In March 2016, the European Union announced its adoption of the equivalence recognition
between Solvency II with temporary equivalence and the Japanese reinsurance supervisionand group solvency.
10. What are the minimum capital requirements?
The minimum amount of capital of an insurance company is 1,000,000,000 yen (Article 6 of

the Insurance Business Act, Article 2-2 of Order for Enforcement of the Insurance BusinessAct).
11. Is there a policyholder protection scheme in your jurisdiction?
The following policyholder protections are available:(1) Procedures allowing to change insurance policy terms by voluntary agreement between
an insurance company and a policyholder in cases where it would be diﬃcult for suchinsurance company to continue its insurance business.
(2) Procedures allowing the Prime Minster to order• an insurance company to take necessary measures, such as suspending its business or
consulting on the transfer of insurance contracts, or• the management of an insurance company’s business and property by an insurance
administrator in cases where it would be diﬃcult for such insurance company to continue its
insurance business.
(3) Procedures allowing the Prime Minister to designate another insurance company andrecommend that such insurance company accept consultations on the transfer, etc. of
insurance contracts in the event of a bankruptcy of an insurance company.
(4) Procedures allowing the Life Insurance Policyholders Protection Corporation of Japan toprovide ﬁnancial assistance for the transfer, etc. of insurance contracts or underwrites
insurance contracts for an insurance company in the event of a bankruptcy of such insurancecompany.
12. How are groups supervised if at all?
An Insurance Holding Company and an insurance company’s major shareholders (i.e.,shareholders holding 20% or more of the insurance company’s voting rights) are required toobtain approval from, and the large holders of the insurance voting rights (i.e., holders
holding 5% or more of the insurance company’s voting rights) are required to makenotiﬁcation to, the FSA supervising such regulations.
The scope of business that subsidiaries of insurance companies may engage is restricted andis stipulated by law. Provided, however, that an insurance holding company’s subsidiary may,with the approval of the FSA, engage in any business that is not prescribed by law.
The arm’s length rule applies to inter-group transactions of an insurance company.

Supervision of the FSA for an insurance company group is based on laws and regulations aswell as the Guidelines and the Financial Conglomerate Supervision Guidelines.
13. Do senior managers have to meet fit and proper requirements and/or be approved?
Article 8-2 of the Insurance Business Act requires directors who are engaged in the businessof running an insurance company to have the knowledge and experience to appropriately,
fairly, and eﬃciently manage such business and to have adequate social trust (“Fit andProper Principle”). These matters are dealt in more detail in the Guidelines.
14. To what extent might senior managers be held personally liable for regulatory
breaches in your jurisdiction?
There are certain criminal penalties for breaches of regulations. Besides, the Prime Minister
may, if an Insurance Company has come to fall under any of the following items, order thedismissal of its director, executive officer, accounting advisor, company auditor or financial
auditor:i if it is in violation of laws and regulations, disposition of the Prime Minister pursuant to laws
and regulations, or particularly important particulars among those prescribed in the
documents listed in the items of Article 4, paragraph (2) of the Insurance Business Act;ii if it is in violation of the conditions attached to the relevant license; andiii if it engages in conduct prejudicial to the public interest.
15. Are there restrictions on outsourcing services relating to the business?
In principle, outsourcing of insurance companies’ business is not restricted. However, theGuidelines govern the management of outsourcees.
Moreover, when an insurance company receives business outsourced by another insurancecompany, it is necessary to obtain approval from the FSA (Article 98, Paragraph 2 of the
Insurance Business Act), and in the case of a group company, a notiﬁcation must be
submitted.
Furthermore, it is generally accepted that the core business of an insurance company, suchas deciding whether to pay insurance claims, cannot be outsourced due to the licensing
system of the insurance business.
16. Are there restrictions on the types of assets which insurers or reinsurers can invest
in or capital requirements which may influence the type of investments held?

The asset management method of an insurer is limited to the scope to the assets set forth in
Article 97-2 of the Insurance Business Act and Article 47 of the Ordinance for Enforcement of
the Insurance Business Act, including such assets as securities, real property, loans, anddeposits.
17. How are sales of insurance supervised or controlled?
Solicitation of insurance is subject to a registration as well as various regulations, such as theduty to provide information and the duty to check the customer’s intent. In addition, theInsurance Business Act has introduced other measures, such as the Cooling-oﬀ System, or the
Financial ADR System.
Apart from those regulations, the Insurance Act – which deals with insurance-related contractlaw (private law) – contains several mandatory provisions designed for the protection of
consumers, which insurers cannot remove by agreement.
18. Are there specific or additional rules pertaining to distance selling or online sales of
insurance?
No, there are no such rules.
19. Are consumer policies subject to restrictions? If so briefly describe the range ofprotections offered to consumer policyholders
Consumer policies are restricted pursuant to several laws. For example, mandatory or
unilaterally mandatory provisions in the Insurance Act (the latter is a series of provisions
making void any
agreement that, contrary to such provisions, adversely aﬀects policyholders); and invalid
provisions under the Consumer Contract Act.
For example, Article 10 of the Consumer Contract Act provides that:“Any consumer contract clause that restricts the rights or expands the duties of the consumer
beyond the application of provisions unrelated to public order in the Civil Code, theCommercial Code (Act No. 48 of 1899) and any other laws and regulations, and thatunilaterally impairs the interests of the consumer in violation of the fundamental principle
provided in the second paragraph of Article 1 of the Civil Code, is void”.
20. Are the courts adept at handling complex commercial claims?
There are no special courts for resolving commercial insurance disputes. Commercial
insurance disputes are generally resolved in district courts or summary courts depending on

the value of the dispute. In general, Japanese courts are adept at handling commercial claims
even they are complex.
21. Is alternative dispute resolution well established in your jurisdictions?
A ﬁnancial ADR system introduced in 2010 to encourage fast, simple and ﬂexible dispute
resolutions. ADR institutions have been established with the designation and supervision of
the FSA. Mediators in the ADR institutions are selected from the professionals in the ﬁnancial
sectors. A ﬁnancial ADR system obligates insurance companies to cooperate the dispute
resolution, wherein insurance companies are required to appear at hearing and provide
certain information requested by the mediators unless reasonable grounds. As such, aﬁnancial ADR system is advantageous to customers compared to lawsuits in the courts. The
number of ADRs handled through ﬁnancial ADR systems remains stable in recent years.
22. Is there a statutory transfer mechanism available for sales or transfers of books of(re)insurance? If so briefly describe the process.
An insurance company may transfer insurance contracts to other insurance companies byobtaining the authorization of the Prime Minister pursuant to the Insurance Business Act. The
mechanism of such transfer is as follows:
l Special resolution of shareholders meeting of both transferor company and transfereecompany in relation to such transfer.
l A transferor company must make a public announcement within 2 weeks after the resolutionof the shareholders meeting as well as notifications to each policyholders that will be affectedby the transfer (the “Affected Policyholders”).
l The Affected Policyholders may raise an objection within certain period. The transfer mustnot be carried out where the number of the Affected Policyholders who have stated theirobjections exceeds one tenth (one fifth, in case of transfer of insurance contracts pertaining
to all insurance contracts) of all Affected Policyholders, and the amount specified by Cabinet
Office Order as the credits belonging to the insurance contracts of the Affected Policyholders
who have thus stated their objections exceeds one tenth (one fifth, in case of transfer of
insurance contracts pertaining to all insurance contracts) of the amount prescribed as thecredits belonging to all Affected Policyholders.
l In case where a transferor company obtains an authorization of the Prime Minister, andwhere any Affected Policyholder raised an objection and manifested their intention to cancel
the contract if the transfer of the contract takes place, the transferor company must refund to
the relevant Affected Policyholder the amount of money reserved for the insured, any
unearned premium and any other amount of money specified by Cabinet Office Order.

23. What are the primary challenges to new market entrants?
Obtaining required license from the FSA is the primary challenges to new market entrants.
As it may take long time to complete the license procedure, new market entrants are betterto commence the discussion with the FSA 1.5-2 years before the launch of business.
24. To what extent is the market being challenged by digital innovation?
In Japan, the emergence of digital innovation in the ﬁnancial sector, so- called FinTech, wasmost pronounced in the banking sector at ﬁrst.
Indeed, the Japanese government ﬁrst responded to FinTech by amending the Banking Act sothat banks could own technology companies as their subsidiaries – something which waspreviously restricted to some extent (the “Amended Banking Act”).
Japanese insurance companies are gradually adopting new technologies to their services,such as IoT (Internet of Things), Big Data and Artiﬁcial Intelligence. For example, Sony
Assurance’s automobile insurance, where an insured has a “driving counter” installed into
their cars, which would monitor their driving; if it shows safe driving on the part of theinsured, the insurer will give the insured cash back towards insurance fees. This technology
was developed in collaboration with OPTEX Co, a Japanese sensor producing company. As
seen in this example, insurance companies alone cannot create new insurtech products
because they do not have any resources/knowledge to develop new technology, so an alliancewith tech companies or telecom companies is therefore necessary.
The remaining question is whether insurance companies are allowed to own tech companies
or telecom companies as their subsidiaries in order to take full control of the newtechnologies. Technology development and telecoms are not included in the list contained in
the Insurance Business Act regarding the scope of business in which a subsidiary of
insurance companies may engage. As stated above, the Amended Banking Act allows banks to
own subsidiaries that provide IT and other technology to enhance banking activities andbeneﬁt the banks’ customers. However, the Insurance Business Act was not amended to
introduce similar modiﬁcation of allowable activities. Therefore, it is questionable whether
insurance companies may own tech companies or telecom companies under the current
regulatory system.
25. To what extent is insurers' use of customer data subject to rules or regulation?
The Insurance Business Act requires an insurance companies to establish an internalmanagement system for proper handling of customer data, including preparation of company
rules, training for employees/officers, controlling access to customer data. In addition, thePersonal Information Protection Act (“PIPA”) provides a personal data mechanism, which isapplicable to insurers’ use of data in relation to individual customers. Under the PIPA,
customerdata can be utilized within the purpose of use that an insurance company notifies upon its
acquisition.
26. Over the next five years what type of business do you see taking a market lead?
Cyberattacks have come to pose a severe and present risk that Japanese companies have tocope with, as they are capable of rendering any countermeasures ineﬀective. The Ministry of
Economy, Trade and Industry of Japan issued the Cybersecurity Management Guideline in
December 2015, which clariﬁes that cybersecurity is a business challenge and thatmanagements of Japanese companies have to take appropriate actions to protect theircompanies. To respond to such situations, insurance companies have developed insurance
products to cover the costs of information leakage or damages caused by a cyberattack.
Indeed, it is reported that the sales of cyberattack insurance will be four times of the sales in
2017.
In relation to cyberattacks, the virtual currency exchange business is currently under big
debate in Japan. The FSA recently started regulatory oversight for the virtual currency
exchange business operators. With this regulatory move, the virtual currency market isactively expanding, and, at the same time, posing concerns that purchased virtual currency
may be lost if the virtual currency exchange business-provider becomes a subject of acyberattack, operational mistake or wrongdoing. In fact, in January 2018, one large virtual
currency exchange business operator was cyberattacked and lost around USD 550 million of
its customers’ virtual currencies. It is expected that such insurance products will provide asense of security to the virtual currency market and make the market more active.
Increased longevity may aﬀect the strategy of insurance companies. Recently, the Institute ofActuaries of Japan published the Standard Longevity Table 2018 (previously amended in2007), indicating signiﬁcant decreases in projected death rates. With this trend of further
increasing people’s longevity, it is reported that insurance companies will lower the fees forlife insurance by 5% to 10% for newly entered insurance contracts. It is also reported thatdemands are gradually shifting from life insurance to products covering living costs when theinsureds become unable to work, reﬂecting the increased longevity.