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Insurance &Reinsurance 2022
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.16

S. Korea

Japan

Tokyo

CONTENTS
1. Basis of Insurance and Reinsurance Law p.3

8. Interpreting an Insurance Contractp.10

2. Regulation of Insurance and Reinsurance p.3

8.2 Warranties

p.10

8.3 Conditions Precedent

p.10

9. Insurance Disputes

p.10

9.1 Insurance Disputes over Coverage

p.10

9.2 Insurance Disputes over Jurisdiction and
Choice of Law

p.11

9.3 Litigation Process

p.11

9.4 The Enforcement of Judgments

p.11

9.5 The Enforcement of Arbitration Clauses

p.11

9.6 The Enforcement of Awards

p.11

9.7 Alternative Dispute Resolution

p.11

p.7

9.8 Penalties for Late Payment of Claims

p.11

5.1 Distribution of Insurance and Reinsurance
Products

9.9 Insurers’ Rights of Subrogation

p.11

p.7

p.12

6. Making an Insurance Contract

p.9

10. Insurtech

10.1 Insurtech Developments

p.12

6.1 Obligations of the Insured and Insurer

p.9

10.2 Regulatory Response

p.12

6.2 Failure to Comply with Obligations of an
Insurance Contract

p.9

11. Emerging Risks and New Products

p.12

6.3 Intermediary Involvement in an Insurance
Contract

p.9

11.2 New Products or Alternative Solutions

p.13

6.4 Legal Requirements and Distinguishing
Features of an Insurance Contractp.9

6.5 Multiple Insured or Potential Beneficiaries

p.9

12. Recent and Forthcoming Legal
Developments

p.13

1.1 Sources of Insurance and Reinsurance Law

p.3

2.1 Insurance and Reinsurance 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 the
Jurisdiction

p.4

3.1 Overseas-Based Insurers or Reinsurers

p.4

3.2 Fronting

p.6

4. Transaction Activity

p.6

4.1 M&A Activities Relating to Insurance Companies p.6

5. Distribution

8.1 Interpretation of Insurance Contracts and Useof Extraneous Evidence
p.10

11.1 Emerging Risks Affecting the Insurance Market p.12

6.6 Consumer Contracts or Reinsurance Contracts p.9

12.1 Developments Impacting on Insurers or
Insurance Products

7. Alternative Risk Transfer (ART)p.9

7.1 ART Transactions

p.9

13. Other Developments in Insurance Law p.14

7.2 Foreign ART Transactions

p.10

13.1 Additional Market Developments

p.13
p.14

2

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 andReinsurance 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, especiallythat established by the Supreme Court, should
be referred to when interpreting insurance contracts.

2 . R E G U L AT I O N O F
INSURANCE AND
REINSURANCE
2.1 Insurance and Reinsurance
Regulatory Bodies and Legislative
Guidance

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 oflicenses.
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.
Against this background, entities targeted forsupervision not only have to make sure that laws
3

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.
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 licenses
mentioned above. Foreign companies planningto enter through their branch offices must obtainforeign insurer’s licences.
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
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

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

(“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.
Policy Reserves
Insurance companies are required to accumulate policy reserves and it is necessary for them
to appoint an insurance administrator with a predetermined actuary’s licence who gets involved
in work related to actuarial science. In 1996,
regulations on the solvency margin ratio wereintroduced. 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 a consolidated basis has been introduced. The European Union announced in March 2016 adoptionof the equivalence recognition between Solvency
II with temporary equivalence and the Japanesereinsurance supervision and group solvency. In
June 2020, the Council of Experts on Economic
Value-Based Solvency Regulations, etc, which
was established at the Financial Services Agency, published a report. In light of that report, the
FSA compiled issues and directions for institutional design, focusing in particular on the ideal
standard model and the validation of insurance
liabilities, etc, and published them in June 2021.
In the future, it is expected that ongoing deliberations will be conducted regarding the economic
value-based solvency regulations, with the aimof tentatively deciding and publishing the basic
content of the system in 2022.

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.

3. OVERSEAS FIRMS
DOING BUSINESS IN THE
JURISDICTION
3.1 Overseas-Based Insurers orReinsurers

Under the Insurance Business Act, the regulations that apply to Japanese insurance companies also apply to local subsidiaries of overseas4

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

based 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 license 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 licenced 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
Business Act) other than the insurance contracts
listed below:• reinsurance contracts;• marine insurance contracts pertaining to
objects such as vessels with Japanesenationality used for international maritime
transportation;

5• 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.
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 186-2of the Insurance Business Act. This exception isprovided for policyholders’ benefit 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 licenced 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 business or be harmful to the public interest.
In a recent trend, the government of Tokyo ispursuing a policy to attract overseas financial

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

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 toInsurance 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.
• 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 business andimposing subsidiary restrictions, and, in certain instances, reporting obligations. As of 26

March 2019, 14 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 toreport 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
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, or lacks important or necessary information, thus causing potential misunderstanding.
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:• 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 of6

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

operating the insurance business appropriately, fairly and effectively.
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 licenced
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:• 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
notice and notify each policyholder, and provide
policyholders a chance to file objections to thetransfer.

5. DISTRIBUTION
5.1 Distribution of Insurance andReinsurance Products

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.
7

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 high rate of salespeople whohave 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 tobe registered to do so. In principle, in the current legal system, life insurance agents may deal
with insurance products of only one insurancecompany. 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.
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) andLaw and Practice JAPANContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office, P.C.

their 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 carried out by agencies, which account for 90.9%of the total 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
8.4% and 0.7% respectively.
Dedicated insurance agencies account for 19%(based on the number of entities involved) of nonlife insurance agencies. Around 54% of non-life
insurance agencies involved in another businessare automobile dealers/repair shops, and around
10% are entities within the real estate industry –with both figures indicating high ratios.
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 todeposit 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 duty of 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 (53 companies).
While most of them focus on large-scale businesses, handling products for consumers isextremely 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 mentioning that additional special regulations have been
applied to banks in order to avoid circumstancesof insufficient consumer protection, which could
result from improper use of the banks’ information-gathering ability in relation to customers’
funds or their improper influence over customers.
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, in essence they 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.

8

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

6. MAKING AN INSURANCECONTRACT
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
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 Obligationsof an 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).
96.4 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 existenceof 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 orReinsurance Contracts
This is not applicable in Japan.

7 . A LT E R N AT I V E R I S K
TRANSFER (ART)
7.1 ART Transactions

It should be determined based on the content of
the product whether such product is subject toJapanese regulation. Certain products may besubject 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 regu-

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

latory system. In this report, it was pointed outthat “Credit guarantees, derivative transactions
and insurance have functionally similar aspects.
However, there are no special business regulations for credit guarantees, and engagement inderivative transactions business are subject toregistration. On the other hand, insurance businesses are subject to license requirement andare required to obtain approval on each insurance product from the competent authorities”.
It is possible that function-based regulations will
be introduced in the future, and attention shouldbe paid to future discussions.

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 conditions, 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.

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 isapplicable to both consumer contracts andreinsurance contracts. In practice, a jurisdiction
clause in an insurance policy determines which
10

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

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 such party is not satisfied with the 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.

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 from thedecision 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.

11

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 resolutions (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 ofClaimsJapan has not introduced the concept of punitive damages. Late payment interest is recoverable in respect of claims; 5% per annum fornon-commercial claims and 6% per annum forcommercial claims. A revision of those interest
rates to 3% per annum with subsequent reviews
every three years to reflect market interest rates
will be introduced from 1 April 2020.

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,
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.

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

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.
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
insured might obtain cash back of insurance
fees if they walked certain average number ofsteps, daily. The insured would be required touse a wearable instrument 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 toward 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 telecom companies is therefore
necessary. Another question has been whether
insurance companies are allowed to own techcompanies or telecom companies as their subsidiaries to take full control of the new technologies.

In response, an amendment to the Insurance
Business Act enacted in June 2020 allows insurance companies to own technology companies
as their subsidiaries, similar to banks under the
Amended Banking Act.
The Fintech Support Desk
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 be watching developments regarding
insurtech with a high degree of interest.

10.2 Regulatory Response

See 10.1 Insurtech Developments.

11. EMERGING RISKS AND
NEW PRODUCTS
11.1 Emerging Risks Affecting theInsurance Market

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 clarifies
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 tocover 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 2019 showing that only 6.9% of SMEs respondents havepurchased cyber-insurance, the cyber-insurance
market in Japan still has enough room to grow.
12

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

12. RECENT AND
FORTHCOMING LEGALWith advancements in autonomous car technol- D E V E L O P M E N T S
11.2 New Products or Alternative
Solutionsogy, 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 apaper discussing legal responsibilities involving
autonomous driving in June 2016.

In the paper, the project team gave its opinion
that the current legal framework is basicallyapplicable to level 3 autonomous driving, wherean automated driving system performs entire
driving tasks with the expectation that humandrivers will respond appropriately to a driving
system’s request to intervene. 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 Instituteof Actuaries of Japan published the Standard
Longevity Table 2018 (previously amended in2007), 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 demandis gradually shifting away from life insurance toproducts covering living costs when the insureds
become unable to work, reflecting increased longevity.

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 a more flexible interpretation and application of policy conditions
from the viewpoint of protecting policyholders,regardless of any precedents.
As of today, the insurance companies’ policy is
to pay insurance benefits by taking that request
into consideration. For example, insurancecompanies have paid hospitalisation benefits to
COVID-19 patients with mild or no symptoms
who were given treatment at lodging facilities orat home in order to secure the availability of the
medical system to severely ill patients.
The Financial Services Agency monitors insurance companies on issues they should address
and the status of responses to them in order tobuild a sound and sustainable business modelin light of changes in the business environment,
including changes due to the COVID-19 pandemic, as well as the resulting changes in customer needs (digitalisation of sales activities,
product development in response to the pandemic, etc).
On 5 June 2020, the “Act on Sales, etc, of Financial Instruments” was amended and renamed as
the “Act on the Provision of Financial Services,”
which went into effect on 1 November 2021, as apart 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,”13

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

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).

determine what stance to take toward financial
services intermediaries, insurers are advised toanalyse their own relationships with brokers,
bearing in mind the different functions servedby brokers and intermediaries.

Today, while the employment and the householdarrangements have diversified, the progress of
ICT 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.

13. OTHERDEVELOPMENTS IN
INSURANCE LAW

Belonging to Financial Institutions
It is not required to belong to a specific financial
institution to start business of a financial services intermediary. However, a security deposit
is mandatory to secure financial resources topay potential compensation in the future. Furthermore, a financial services intermediary is notallowed to accept users’ assets, handle certain
types of 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 toward this new sales channel.
The insurance sector already has a long-standing market player in the form of an insurance
broker which is independent from insurers. To

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 a financial company attempt to adopt thesegeneral principles (although it is up to financial
undertakers whether to adopt them, in practice,
however, it is difficult 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 then regularly make public announcements on how their efforts in relation to suchguidelines are progressing.
The FSA Strategic Priorities for the fiscal year
2021 are as follows:• The FSA will monitor the use of the Important Information Sheet, the product selection
process for proposing the best product tocustomers, the sales and proposal process,and the efforts of the sales representative
performance evaluation system.
• The FSA will disclose the status of initiatives
taken by financial businesses in a comparable manner on its website and strengthen thedissemination of information through suchmeans as the introduction of good practices.
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JAPAN Law and PracticeContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office, P.C.

• The FSA will encourage financial companies
to engage in a dialogue with financial business operators, focusing on whether theirpolicies of engagement with financial business operators reflect the content and spiritof (a) the Customer-Oriented Principles, and(b) the specific actions that sales representatives, etc, should take.
• The FSA will encourage financial institutions
to prepare and publish “Comparable Common KPIs at Investment Trust Sales Companies” (Customer Ratio by Investment Profit/
Loss, etc) that are introduced in investment
trusts on the same basis for foreign currencydenominated insurance.
Policy for Insurance Supervision
On 31 August 2021, the FSA announced the“The JFSA Strategic Priorities July 2021-June2022 - Overcoming COVID-19 and Building the
Financial System for Greater Vibrancy.” Basedon these JFSA Strategic Priorities the following
policy of insurance supervision administration
for fiscal year 2021 which was formulated.
Insurance companies are required to respond tochanges in the business environment, such as
the continuation of population decline and low
interest rate environment, the intensification ofnatural disasters, the shrinkage of the automobile insurance market, and the advancement ofdigitisation, both now and in the post-COVID-19
scenario. In response to these changes in thebusiness environment, it is important to build asustainable business model and develop products in line with changes in customer needs.

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IT
Currently, amid the growing need for non-faceto-face and efficient business operations, there
are issues such as human resource development
in response to digitalisation.
Group governance
As insurance companies expand overseas,
it is important to advance the sophisticationof governance on a group basis. Accordingly,
cooperative efforts through dialogue with overseas authorities will be encouraged so that thesophistication of governance on a group basis
can be steadily advanced.
Natural disasters
Regarding responses to natural disasters, amid asevere situation in which reinsurance premiums
are soaring, it is an urgent issue to manage risks
while striking a balance between capital, risk,
and return at the management level. Monitoring of the efforts of each company will continue.
Furthermore, the financial company will engage
in dialogue with the non-life insurance industry,etc, regarding appropriate and prompt payment
of insurance claims and the optimal fire insurance premium rate in line with the risk.
ESG
In addition, in response to the environmental
changes referred to above, financial companies
will, on an ongoing basis, examine appropriate protections of policyholders, etc, and makepreparations for the smooth transition to a policyof soundness based on economic value-based
solvency regulations, and will also constantly
review financial indicators and regulations.

Law and Practice JAPANContributed 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 resolutions involving 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 understandingof the workings of 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 Chuo Sogo Law Office. His
key practice areas are insurance
and reinsurance; 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 was on loan to the Insurance
Business Division of the Supervisory Bureau of
the Financial Services Agency (FSA) in Japanas a fixed-term governmental official. He has
been a member of the Japanese Society of
Insurance Science since July 2007.

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 wason secondment at 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 of Rakuten General Insurance Co, Ltd.

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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