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Insurance Industry Overview

11, 01. 2004

Current State

Integration of Nonlife Insurance Companies Progresses Rapidly

Sales brochures of competing insurance companies
Sales brochures of competing insurance companies
 

   While Japanese life insurance companies are beginning to climb out of the critical state it found itself in, the combined total individual life insurance in force of the nine major life insurers for the fiscal year ended March 2004 was still down 5.6 percent from a year earlier. This marked the seventh consecutive year of decline, showing that a shift away from life insurance still continues. Meanwhile, although all nine major nonlife insurance companies and groups were in the black in FY2003 due to rising shareprices, their income from premiums fell, and they are concerned about the ceiling that has been hit in the market as a whole.

   Like other financial services sectors, the life insurance and nonlife insurance industries found themselves within the scope of financial deregulation. The consolidation of insurance companies has progressed rapidly in the past 10 years and was especially marked within the nonlife insurance sector.
   Tokio Marine and Fire Insurance Co., Ltd., the largest nonlife company in Japan, and Nichido Fire and Marine Insurance Co., Ltd. integrated their operations and established Millea Holdings, Inc. in April 2002, becoming wholly owned subsidiaries of the holding company. Subsidiaries Tokio Marine Life Insurance Co., Ltd. and Nichido Life Insurance Co., Ltd. later also came under the Millea Holdings umbrella (now merged as Tokio Marine & Nichido Life Insurance Co., Ltd.). Tokio Marine merged with Nichido Fire in October 2004 resulting in the birth of Tokio Marine & Nichido Fire Insurance Co., Ltd.
   Meanwhile, Yasuda Fire and Marine Insurance Co., Ltd. merged with Nissan Fire & Marine Insurance Co., Ltd. and established Sompo Japan Insurance Inc. An additional merger with Taisei Fire and Marine Insurance Co., Ltd. gave Sompo Japan the No. 2 position in the industry. Mitsui Marine and Fire Insurance Co., Ltd. and Sumitomo Marine and Fire Insurance Co., Ltd., two zaibatsu-affiliated companies, merged to form Mitsui Sumitomo Insurance Co., Ltd. which now holds the No. 3 spot in the industry.

Delayed Reorganization of the Life Insurance Industry

   Reorganization of the life insurance industry is greatly behind the nonlife insurance industry where consolidations have been taking place at a rapid pace. The reason for this is that while nonlife insurance companies are joint stock companies, many life insurance companies are mutual companies. Reorganization of the industry is proceeding, however, even under such circumstances, and industry giant Meiji Life Insurance Co. merged with Yasuda Mutual Life Insurance Co. to form Meiji Yasuda Life Insurance Co. in 2004. Daido Life Insurance Co., Taiyo Mutual Life Insurance Co. and T&D Financial Life Insurance Co. have established a holding company and are planning to integrate their operations.

Contract number of insurance classified by type

   Another characteristic of the reorganization of the life insurance industry is that there are many cases in which a collapsed life insurance company has made efforts to reestablish itself by becoming a subsidiary of a foreign-owned corporation. For example, Aoba Life Insurance Co., Ltd., which had taken over the existing policies of collapsed Nissan Mutual Life Insurance Co. in 1997, was acquired by French conglomerate Artemis S.A., in 1999. Aoba Life was resold to Prudential Financial Inc. in November 2004, with full integration expected soon. Meanwhile, Chiyoda Mutual Life Insurance Co. was acquired by American International Group, Inc. (AIG).

Three Key Points towards the Future

Point 1
Can Consumer Shift Away from Life Insurance Products Be Curbed?

Transition in Household Joining Rate of Earthquake Insurance in Japan

   Personal assets in Japan had been managed through bank deposits and subscription to life insurance. Because guaranteed returns on insurance policies were especially relatively attractive in the case of life insurance policies, there had been excess subscription in Japan to insurance policies. Since the collapse of the bubble economy, however, consumers have rapidly shifted away from life insurance. Not only is growth in new subscriptions sluggish, there is also an increase in the surrender of existing policies. The biggest reason is that life insurance companies are no longer able to secure guaranteed yields for policyholders due to the deterioration of asset activities, and there have been failures seen among life insurance companies. The series of bankruptcies has resulted in increased distrust of life insurance companies by consumers. In 2003, the Japanese government revised the Insurance Business Law in order to enable insurance companies to lower the guaranteed returns on insurance policies before it was forced into bankruptcy. However, out of fear of triggering massive surrenders, no life insurance company has yet lowered the rates of return promised to policyholders. How to curb the shift away from life insurance is the biggest issue being faced by the life insurance industry.

Point 2
Market Share of Foreign-affiliated Life Insurance Companies Will Continue to Increase

   It is expected that the market share of foreign-affiliated life insurance companies will increase with certainty. In the field of life insurance, failed Japanese life insurance companies have become subsidiaries of foreign affiliates. They are positively establishing sound footing in the Japanese market, as seen, for example, in the No. 6 position held in the Japanese insurance industry today by American Life Insurance Company (ALICO) Japan, and the No. 8 position marked by the Family Life Assurance Company (AFLAC). Foreign affiliates in Japan are succeeding by implementing efficient sales methods that utilize telecommunications, etc., while Japanese life insurance companies are still conducting sales activities thorough the use of a huge number of sales personnel, commonly known as "life insurance ladies" (women commonly act as sales agents). It is through such reasons that the market share of foreign-affiliated life insurance companies will continue to increase with certainty.

Point 3
Can Insurance Companies Develop the "Third Field" Related to the Aging of Society?

Net Premiums by Line in FY 2003

   A new insurance area is a market known as the "third field." It is clear that there is a limit to the expansion in the sales of conventional insurance products such as life insurance and auto insurance. Increased attention is now being placed on medical insurance as well as insurance related to Long-term Care Insurance. With the rapid aging of society expected in Japan, there are expectations especially on the launch of private-sector insurance products that will supplement the government's National Health Insurance, Long-term Care Insurance, etc. With the October 2004 entry into the medical insurance field by Tokio Marine & Nichido Fire, the largest nonlife insurance company in Japan, all three Japanese nonlife majors - Tokio Marine & Nichido Fire, Mitsui Sumitomo Marine and Sompo Japan - have now advanced into this "third field."

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