GLOBAL PRACTICE GUIDES
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Insurance &Reinsurance
Contributing Editor
Simon CooperIncepracticeguides.chambers.com

2021

JAPAN
Law and PracticeContributed by:
Hironori Nishikino and Koji Kanazawa
Chuo Sogo Law Office, P.C. see p.190

Contents
1. Basis of Insurance and Reinsurance Law
1.1

p.180

8. Interpreting an Insurance Contract

p.184

Sources of Insurance and Reinsurance Law

p.180

8.1

2. Regulation of Insurance and Reinsurance

p.180

Interpretation of Insurance Contracts and Useof Extraneous Evidence
p.184

8.2

Warranties

p.185

8.3

Conditions Precedent

p.185

2.1

Insurance and Reinsurance Regulatory Bodies
and Legislative Guidance
p.180

2.2

The Writing of Insurance and Reinsurance

p.181

2.3

The Taxation of Premium

p.181

3. Overseas Firms Doing Business in
the Jurisdiction

Insurance Disputes over Coverage

p.185

9.2

Insurance Disputes over Jurisdiction and
Choice of Law

p.185

9.3

Litigation Process

p.185

9.4

The Enforcement of Judgments

p.185

9.5

The Enforcement of Arbitration Clauses

p.185

p.182

9.6

The Enforcement of Awards

p.185

9.7

Alternative Dispute Resolution

p.185

p.182

9.8

Penalties for Late Payment of Claims

p.185

9.9

Insurers’ Rights of Subrogation

p.185

p.181

Overseas-Based Insurers or Reinsurers

p.181

3.2

Fronting

p.182

4.1

M&A Activities Relating to Insurance
Companies

5. Distribution
5.1

Distribution of Insurance and Reinsurance
Products

6. Making an Insurance Contract

p.182
p.182
p.184

6.1

Obligations of the Insured and Insurer

6.2

Failure to Comply with Obligations of an
Insurance Contract

6.3

Intermediary Involvement in an Insurance
Contract

p.184

6.4

Legal Requirements and Distinguishing
Features of an Insurance Contract

p.184

6.5

Multiple Insured or Potential Beneficiaries

p.184

6.6

Consumer Contracts or Reinsurance
Contracts

p.184

7. Alternative Risk Transfer

p.185

9.1

3.1

4. Transaction Activity

9. Insurance Disputes

p.184
p.184

p.184

7.1

ART Transactions

p.184

7.2

Foreign ART Transactions

p.184

10. Insurtech

p.186

10.1 Insurtech Developments

p.186

10.2 Regulatory

p.186

11. Emerging Risks and New Products

p.186

11.1 Emerging Risks Affecting the InsuranceMarketp.186

11.2 New Products or Alternative Solutions

p.186

12. Recent and Forthcoming Legal
Developments

p.187

12.1 Developments Impacting on Insurers or
Insurance Products

p.187

13. Other Developments in Insurance Law

p.187

13.1 Additional Market Developments

p.187

179

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 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 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 and Non-life Insurance
Underwriting life insurance and non-life insurance entails
obtaining the necessary business licences from the regulatory authorities. Such licences 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 have180

board of directors’ meetings, auditors’ meetings, audit and othercommittee meetings, and meetings such as nominating committee meetings, and accounting auditors. Foreign companies
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 licences.
During the licence 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”).
Other Business and Subsidiaries
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 approval of theregulatory authorities, insurance holding companies may havecompanies as their subsidiaries that insurers themselves may
not own.
With respect to prescribed matters (which are quite extensive), such as customer explanations, or information control,
insurance companies are obligated to have a system in place tosecure soundness 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 inwork related to actuarial science. In 1996, regulations on theLaw and Practice JAPANContributed by: Hironori Nishikino and Koji Kanazawa, Chuo Sogo Law Office, P.C.

solvency margin ratio were introduced. The solvency marginindex 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.

inside Japan. The procedure to apply for the licence 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.

At present, the solvency margin ratio on a consolidated basis
has been introduced. The European Union announced in March
2016 adoption of the equivalence recognition between Solvency
II with temporary equivalence and the Japanese reinsurance
supervision and group solvency. In June 2020, the Advisory
Council on Economic Value-Based Solvency Regulations (ESR)
established by the Financial Services Agency in 2019 released areport on the future direction of domestic regulations.

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 theinsurance contracts listed below:

In light of this report, more discussions are anticipated to takeplace to revise, as needed from the viewpoint of convergenceto the ICS Version 2.0, the standard model for domestic regulations, which serves all insurance companies as a basic computational model for ESR, in terms of (a) the risk factor andthe categories to reflect the domestic risk profile, and (b) coordination with non-consolidated regulations, while employing
the basic framework of the ICS.

2.2 The Writing of Insurance and Reinsurance

See 2.1 Insurance and Reinsurance Regulatory Bodies andLegislative 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 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 licenced 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• 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.
Exceptions and permissions
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 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 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 Japanese181

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

market 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. 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.
Obtaining Shares
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 the182

shareholder’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.
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 insurance company after themerger will be capable of operating the insurance businessappropriately, 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 BusinessAct. Purchasers of insurance businesses must be licenced 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 inter-

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

mediary to conclude insurance contracts, an activity that falls
within the definition of “insurance solicitation” under the Act.

are entities within the real estate industry – with both figuresindicating high ratios.

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 female 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 theso-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 Brokers
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 (54 companies).
While most of them focus on large-scale businesses, handling
products for consumers is extremely rare.

Non-life Insurance Companies
The situation involving non-life insurance companies (including a reinsurance company) is as follows:• 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, their officers (withthe exception of auditors) and their employees may engage
in “insurance solicitation”. No officers or employees of
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 91.2% 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 8.1% and 0.7% respectively.
Dedicated insurance agencies account for 19% (based on thenumber of entities involved) of non-life insurance agencies.
Around 53% of non-life insurance agencies involved in anotherbusiness are automobile dealers/repair shops, and around 10%

Sales Through Banking Channels
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.
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’ information-gathering ability
in relation to customers’ funds or their improper influence overcustomers.
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 in connection
with insurance solicitation without customers’ consent) or the
regulations concerning soliciting of 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 to protect the traditional channels of insurance
distribution.
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.

183

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

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.

6.5 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 theinsureds and/or parties authorised by the insureds to receive
the benefits.

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

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.

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.

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 engagement 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”.

6.3 Intermediary Involvement in an Insurance
Contract

It is possible that function-based regulations will be introducedin the future, and attention should be paid to future discussions.

6.2 Failure to Comply with Obligations of an
Insurance Contract

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.

184

7.2 Foreign ART Transactions
This is not applicable in Japan.

8. Interpreting an Insurance Contract
8.1 Interpretation of Insurance Contracts and Useof 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 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.

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

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

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 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 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 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 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 fromthe decision of the arbitral tribunal. However, the Arbitration
Act provides that the parties may file a petition to set aside thearbitral award to the court in some situations, such as invalidityof 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 can be enforced inJapan.

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 throughADRs.

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.

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 shallbe subrogated to ownership and any other real right that theinsured holds over the insured property, in accordance withthe 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).

185

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

Article 25 of the Act provides that, when an insurer has madean insurance proceeds payment, the insurer shall be subrogatedwith regard to any claim acquired by the insured due to theoccurrence of any damages arising from an insured event up
to the smaller of:• the amount of the insurance proceeds payment made by the
insurer; or• the amount of the insured’s claim.

10. Insurtech
10.1 Insurtech Developments

In Japan, the emergence of fintech was, at first, most pronounced
in the banking sector. Indeed, the Japanese government first
responded to fintech by amending the Banking Act so thatbanks could own technology companies as their subsidiaries,
which was previously restricted to some extent (the “Amended
Banking Act”). The Amended Banking Act came into force on
1 April 2017.
Adoption of New Technologies
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 they walked certain average number of steps,
daily. The insured would be required to use 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 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, an amendment to the Insurance Business Act
enacted in June 2020 allows insurance companies to own technology companies as their subsidiaries, similar to banks underthe Amended Banking Act.

186

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 bewatching developments regarding insurtech with a high degreeof interest.

10.2 Regulatory

See 10.1 Insurtech Developments.

11. Emerging Risks and New Products
11.1 Emerging Risks Affecting the InsuranceMarketCyber-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, insurance companies have developed insurance products to cover the costs of information leakage or damages caused by a cyber-attack. However, considering
the survey conducted by the General Insurance Association ofJapan in 2019 showing that only 6.9% of SMEs respondents
have purchased cyber-insurance, the cyber-insurance 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 the current 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.

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

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

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

COVID-19
On 10 April 2020, as the impact of COVID-19 continued to
expand, the FSA requested that the insurance industry consider
a more flexible interpretation and application of policy conditions from the viewpoint of protecting policyholders, regardlessof any precedents.
As of today, the insurance companies’ policy is to pay insurance
benefits by taking that request into consideration. For example, insurance companies have paid hospitalisation benefits to
COVID-19 patients with mild or no symptoms who were given
treatment at lodging facilities or at home in order to secure theavailability of the medical system to severely ill patients.
The Financial Services Agency’s view is that insurance companies should take measures to adopt the so-called “new lifestyles”
to cope with the COVID-19 impact; thus, the Agency believes
that it should supervise insurance companies by focusing on
the issues critical to building a sound and sustainable businessmodel for insurance companies (such as product design andrisk management), as well as the development of accompanying solutions.
On 5 June 2020, a bill was passed revising the “Act on Sales, etc,
of Financial Instruments” and renaming the Act as the “Act on
Provision of Financial Services.” The new law is set to come into
effect 18 months from the enactment of said bill, as a part of thelegislation on cross-sectional financial services intermediaries.
New Intermediary Business Category
The new law introduces a new category of “Financial Services
Intermediary Businesses,” a category which entails a registration system that allows for a one-stop mediation service in all
financial areas for a single registration, covering banking, securities, insurance, and loans (ie, cross-sectional legislation for theprovision of financial services).

Today, while the employment and the household arrangements
have diversified, the progress of ICT has enabled the provisionof 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 theirindividual needs.
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
to pay potential compensation in the future. Furthermore, afinancial services intermediary is not allowed 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 be handled by financial
services intermediaries is yet to be defined by a cabinet order inthe future. These developments should be followed closely, as
the scope of these products will be critical in determining theimpact of the “financial services intermediaries” as a new sales
channel and a game changer in the insurance industry.
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 longstanding market player in the form of an insurance broker whichis independent from insurers. To determine what stance to taketoward financial services intermediaries, insurers are advised toanalyse their own relationships with brokers, bearing in mind
the different functions served by brokers and intermediaries.

13. Other Developments in InsuranceLaw
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

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

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.
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 has come fully into force as of 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 of interest accrued at
a given point in time is deducted from the loss of prospective
profits when the damages for death or secondary diseases arecalculated. In civil matters, a statutory rate of interest was established by the Supreme Court of Japan and has been adopted. It
is predicted that the lower rate effectuated by the amendment of
the Civil Code will increase the amount of damages.
Note that the amended Civil Code makes it clear that the statutory rate of interest at the time of the emergence of the right toseek damages is adopted as the rate for interim interest deduction. After the enforcement of the amended Civil Code, it isexpected 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 “JFSA priorities for July 2020-June 2021: Fightagainst COVID-19 and the development of a better post-COVID society”, published by the Financial Services Agency on 31
August 2020, the policy of Insurance Supervision Administration for 2020 fiscal year is as follows:

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Monitoring
Based on the results of monitoring during the last fiscal year,
another monitoring will be conducted focusing on in-depth
dialogues on the risk management system that supports a formulation and promotion of appropriate management strategies,
the demonstration of governance functions, and other issues
essential for the creation of a sustainable business model.
Natural disasters and IT
In particular, with regard to the response of each non-life insurer to natural disasters, from the viewpoint of economic recoveryof the victims of a disaster, it is important that individual damage assessments and insurance benefit payments be conductedeffectively and promptly; accordingly, each company has been
making its own efforts, including the introduction of IT. Alongwith these operational issues, the FSA will promote dialogues
and discussions with non-life insurers and relevant organisations such as the Japan Non-Life Insurance Association on how
the insurance sector should function to prepare for large-scale
natural disasters.
Group governanceWith regard to group governance, including the managementof overseas subsidiaries, in light of the international guidelines
adopted by the International Association of Insurance Supervisors (IAIS) in November 2019, the guidelines for group supervision will be revised to stimulate sophistication of group governance and risk management according to the scale and risk
profile of each insurance group. In particular, with regard to
the overseas expansion of major insurers, in collaboration withforeign authorities, business management as well as ERM will
be closely monitored by such means as information exchanges
with relevant supervisory authorities through the Supervisory
College.
ESR
With respect to economic value-based solvency regulations(ESR), etc, the government will, by taking account of the direction and discussion schedule set forth in the Report of theExpert Committee, make steady progress in preparing for aseamless transition to a fiscal soundness policy based on new
solvency regulations through the implementation of domestic field tests and conducting a dialogue with a wide range ofparticipants. The current financial indicators and regulations
will also be continuously revised to contribute to appropriate
internal management of insurers. Specifically, the optimal goalof achieving basic profits in consistency with economic valuebased risk management will be discussed. In addition, basedon the state of investment by each company and the interest
rate environment in each country, the appropriateness of policy
reserves for foreign currency-denominated insurance for which