International professional services firm EY has pointed out that more non-insurance companies (largely financial services players) are entering Japan’s P&C market, which could significantly impact the dominant position of the top P&C insurers.
The domestic non-life insurance market is currently largely an oligopoly. The three largest insurers hold 85.6% of market share, while foreign insurers hold only 8%, notes EY in its 2020 Japan Insurance Outlook report.
At the same time, the increase in damage from severe natural disasters in Japan is leading P&C insurers to redefine risk profiles using the most up-to-date technologies. Further, they will look to adopt advanced technologies to reduce the high cost and inefficiency of legacy systems and improve their operational agility.
Dominance of automotive
Automobile insurance (including compulsory automobile liability insurance) represents 60% of net premium in Japan. A “grading system” determines premiums based on policyholders’ accident histories. Agencies dominate sales of auto policies. Hovering around 4%, direct sales are increasing. Enormous shifts within the automotive market are to be expected as advanced telematics become more common.
Improving commission and operating expense ratios
Commission ratios for non-life insurers, which post a combined JPY9tn ($82.7bn) in premiums, have fallen. Company expense ratios have also decreased. The declines show that operations have become more efficient.
EY says that the imperatives for non-life insurers are:
1 Develop and offer new products and services that address the risks and opportunities relative to new technologies and societal shifts (e.g., the future of mobility, connected homes, broader adoption of personal and company data transaction).
2 Seize new business opportunities and create ecosystems through mergers and acquisitions and partnerships with InsurTechs and other digital startups.
3 Enhance customer experiences at every touchpoint and strengthen the infrastructure for existing customers.
4 Leverage technologies like AI, the cloud, and advanced analytics to improve the efficiency of key functions and parts of the value chain.