Life-insurance business in Japan

Life-insurance business in Japan

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column-dennis funaIN terms of life-insurance premium, Japan is the second-largest market in the world, second only to the United States.

As of 2013 figures, Japan generated a premium volume of around $422 billion. A 16.21-percent share of the world market. The United States is still the world’s largest life-insurance market with $522 billion in premium volume, or 20.43 percent, of the world’s market share. Coming in a far third is the United Kingdom with $222 billion in premium volume, or 8.55 percent, of the world’s market.

Like that in the Philippines, the life-insurance market in Japan is dominated by foreign life insurers. As of 2012, the top 3 life insurers in Japan are Axa S.A. at No. 1, United Health Group Inc. at second and Allianz SE at third. There are only four Japanese insurers in the top 20, they are Japan Post Insurance Co. Ltd. at No. 6, Nippon Life Insurance Co. at No. 11, Meiji Yasuda Life Insurance Co. at No. 16 and Dai-ichi Life Insurance Co. Ltd. at No. 17. The total life-insurance payments averaged at Y23 trillion annually.

The Japanese life-insurance market has been plagued by a decreasing penetration rate, which has seen a gradual decrease in the number of life-insurance policies issued since the 1990s. It has been observed that there has been a decrease in mortality-type insurance and an increase in the more medical-type policies. Perhaps a direct consequence of an aging population, a problem recognized by the industry. From a peak of five insurance policies owned per household in 1994, it has decreased to 3.6 policies per household in 2012.

A look at their 2013 figures will show that whole life insurance still constitutes a bulk of the policies issued at 25.56 percent of the total policies. Coming in second is the medical type of insurance at 24.15 percent of the total policies. Third is the term life at 14. 41 percent, fourth is the endowment type (death benefits) at 10.77 percent, fifth is cancer insurance at 8.8 percent, sixth is fixed annuity at 8.25 percent, seventh is juvenile insurance at 3.57 percent and eighth is the variable annuity at 1.01 percent.

In terms of assets, the Japanese life-insurance industry holds a total asset of ¥350 trillion as of the end-March 2013. Almost 42.73 percent of these assets are in Japanese government bonds (JGB). As of February 27, 2015, $1 is equivalent to ¥120.27.

Japan, as we all know, remains in an economic slump. After the financial crisis in the 1990s following the collapse of its “bubble economy,” its 2013 gross domestic product (GDP) is at 1 percent with a GDP per capita (2013) of ¥3.756 million. It suffers from falling stock prices, falling interest rates (0.349 percent for the JGB 10-year yield as of February 27, 2015).

Between 1997 and 2009, a total of eight insurance companies went bankrupt. Four of these, however, were able to restart business again, particularly Chiyoda Life, Kyoei Life, Tokyo Life and Yamato Life.

In order to face these difficult challenges, a number of steps have been instituted. Foremost of these are the accumulation of internal reserves; restructuring their investment portfolios, particularly by reducing their stocks investments; putting in place asset-liability management; reducing operating expenses, accumulation of additional policy reserves; and revising their products, such as moving into medical insurance.

There are lessons to be learned by the Philippine life-insurance industry. At the forefront in confronting these challenges is the Life Insurance Association of Japan, an association incorporated on December 7, 1908. Its avowed mission is the promotion of a sound development for the life-insurance industry. No doubt, as the second-largest life- insurance market in the world, the Japanese life-insurance industry will continuously be watched as it faces strong challenges.

Atty. Dennis B. Funa is the Insurance Commission’s deputy commissioner for legal services.

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