Japan

MACROECONOMIC SNAPSHOT
  Japan’s GDP growth declined from 1.9% in 2017
    to 0.8% in 2018, largely due to a continuous decline
      in external demand brought about by the ongoing U.S.
        -China trade conflict, which has hit Japanese companies
          that supply parts and components to China.

Japan

MACROECONOMIC SNAPSHOT
  Japan’s GDP growth declined from 1.9% in 2017
    to 0.8% in 2018, largely due to a continuous decline
      in external demand brought about by the ongoing
        U.S.-China trade conflict, which has hit Japanese
          companies that supply parts and components
            to China.

Japan

MACROECONOMIC SNAPSHOT
Japan’s GDP growth declined from 1.9% in 2017 to 0.8% in 2018, largely due to a continuous decline in external demand brought about by the ongoing U.S.-China trade conflict, which has hit Japanese companies that supply parts and components to China.

Encouraged by various government stimulus policies and the strong world economy, Japan is expected to continue growing moderately despite uncertainty stemming from the impact of a consumption tax hike planned for October 2019. Furthermore, growth is expected to be supported by increasing internal demand fuelled by the construction demands ahead of the 2020 Tokyo Olympic and Paralympic Games.


REGULATORY DEVELOPMENTS

Commitment to sustainabilty

In June 2018 the Financial Services Agency of Japan (JFSA) published its strategy for supporting the UN Sustainable Development Goals (SDGs). The JFSA is encouraging insurers and other financial services providers to take action, highlighting examples of initiatives taken by Japanese insurers, such as long-term loans to hospitals in Turkey and investments in bonds intended to finance drinking water in Ethiopia and Nigeria. In non-life insurance, the JFSA underscored the leadership of insurance firms in developing innovative weather-related protection schemes to help farmers in South East Asia and South Asia cope with flood and drought.

Given changes to the environment such as the ageing population, the increase in natural disasters due to the effects of climate change and the potential threat of large-scale earthquakes, the expectations for the general insurance industry to contribute to the realisation of a sustainable society are increasing. The General Insurance Association of Japan (GIAJ) has put emphasis on the industry’s contribution toward the SDGs and committed to six strategic objectives relevant to SDGs: (1) contribute to assisting ageing people to stay healthy and active; (2) enhance awareness of the risks of a non-active life style; (3) contribute to preventing and mitigating natural disaster, accident and crime risks; (4) embrace innovative technologies; (5) contribute to environmental preservation; and (6) expand activities in the international insurance markets.

The Life Insurance Association of Japan (LIAJ) has also taken up measures to promote SDGs. In November 2018, the LIAJ revised its code of conduct and committed to enhancing momentum toward SDGs.


INSURANCE TOPICS

Natural catastrophes

In 2018 the Japanese islands were exposed to natural disasters such as typhoons, floods, landslides and earthquakes, and were hit by the top three most expensive events of the year—Typhoons Jebi and Trami and the Mei-Yu rains. The total insured losses for the three major non-life Japanese insurers are estimated at JPY 1 trillion (USD 9 billion). However, the impact on year-end consolidated financial statements (end of March 2019) is expected to be offset by higher reinsurance covers, geographic diversification and adequate capitalisation levels.

Earthquake protection

Earthquake and fire are considered the top risks in Japan. At the residential level, the percentage of fire insurance policyholders who purchased optional earthquake riders increased from 58% in 2013 to 63% in 2017. However, at the commercial level earthquake risk insurance continues to see lower levels of penetration.

This represents an opportunity for the insurance industry to promote a holistic approach to business continuity management in the event of an earthquake. Loss prevention risk management services that harness the advantages of the Internet of Things seem particularly relevant, as well as innovative products that go beyond asset-related risks and cover earnings and cash flow risks.


EMERGING TRENDS

‘Society 5.0’

The Japanese government defines its Society 5.0 initiative as ‘a human-centred society that balances economic advancement with the resolution of social problems by a system that highly integrates cyberspace and physical space’.

Society 5.0 calls for further enhancement of the social receptivity of autonomous vehicles. The GIAJ has been conducting awareness-raising activities in cooperation with the Independent Insurance Agents of Japan and continues to study how to bear the liability of accidents involving self-driving cars and utilize in-vehicle data.

Enhanced cybersecurity is vital to the realisation of Society 5.0. The GIAJ conducted a survey of domestic corporations with the aim of obtaining an overall picture of their responses to cyber risks and awareness of cyber insurance. The results of the survey show that more than 60% of respondents fail to recognise that they may become targets of a cyber attack. The GIAJ will use the results to undertake measures aimed at enhancing corporate cyber security.

Voice recognition and Artificial Intelligence

Japanese insurers introduced several new services to customers, leveraging some of the latest technologies. For example, a life insurer member of The Geneva Association started a collaboration with Amazon to leverage the voice recognition capabilities of its product Alexa to aid in preventing dementia.

A non-life member of the Association made a strategic investment in a U.S. Insurtech company with the aim of improving its claims services through AI and advanced data analytics. As the Japanese insurance industry may face a shortage of experienced claims staff in the near future, it is becoming imperative for insurers to adapt digital technologies that perform such activities in aN economically sound way.



China and
  rest of Asia

MACROECONOMIC SNAPSHOT
  China’s economic growth slowed down to 6.6% in
    2018 versus 6.9% the year prior, making 2018 the
      slowest-paced year in almost three decades.

China and rest of Asia

MACROECONOMIC SNAPSHOT
  China’s economic growth slowed down to 6.6% in
    2018 versus 6.9% the year prior, making 2018 the
      slowest-paced year in almost three decades.

China and rest of Asia

MACROECONOMIC SNAPSHOT
China’s economic growth slowed down to 6.6% in 2018 versus 6.9% the year prior, making 2018 the slowest-paced year in almost three decades.

This slowing momentum, along with the U.S.–China trade tensions, uncertainty around Brexit and strengthening of the U.S. dollar, weakened financial markets in Asia.

The environment caused currency volatility in many Asian emerging markets and affected capital flows. There were adjustments concerning materials and labour in regional supply chains, e.g. certain automobile and home appliance manufacturing activities have moved from China to Vietnam. These developments shifted the financial and insurance services required from the traditional markets in China, Korea and Japan to new markets in South East Asia. As a result, insurance markets such as Vietnam grew in 2018 at annualised rates exceeding 20%.


REGULATORY DEVELOPMENTS

Opening of the Chinese financial sector

Pursuant to its strategy to open up the financial sector to foreign investors, the China Banking and Insurance Regulatory Commission (CBIRC) is expected to issue more new licences to foreign players. The first foreign reinsurer that was granted a licence in 2018 was Korean Re. Elsewhere in the region, regulators in ASEAN (Association of Southeast Asian Nations) countries are taking steps to approve online banks and online insurance companies with much lower capitalisation requirements compared to conventional firms.

The opening up of the financial markets in China is expected to create a cascade effect on other Asian markets. Such a reaction would also be in response to the prospects of slower global economic growth in 2019 as all the economies compete for foreign direct investment.


INSURANCE MARKET TOPICS

Natural catastrophes

Although Typhoon Mangkhut was one of the largest storms in history to hit the Hong Kong, Shenzhen and Macau areas, the actual insured losses were relatively modest. Reinsurance pricing for the 2019 renewal season remained stable even though 2018 was one of the years with the highest insured catastrophic losses on a global basis. This phenomenon reaffirms the effect of robust risk modelling and the availability of alternative risk capital as well as the segregation of markets—similar to the large hurricane losses of 2016, which impacted the U.S. markets but did not drive up Asia’s premiums.

Ageing population

The increase in outcome-based products and pricing has been a key development in the Chinese market. Life and health companies are shifting from critical illness optional riders to independent covers for high-risk patients with pre-conditions such as diabetes, heart disease and cancer. Alibaba's financial arm Ant Financial launched the first cover for several mutuals.

As the Chinese population ages, the third-party administrator (TPA) sector for long-term care and health management organisations is growing in relevance. However, the sector faced strong competition in 2018 from many new online services that allow customers to find doctors and treatment options and run cost comparisons—services which are now competing with conventional TPAs.


EMERGING TRENDS

Online vs offline distribution

In 2018 conventional insurance business experienced slower growth relative to online channels. According to the Insurance Association of China (IAC), premium income in via online distribution channels grew by 37% year on year, which was 23% higher than all other sales channels. The IAC highlighted that 16 foreign insurance companies in China reported a 125% growth in P&C premium income via online distribution.

The biggest growth in online insurance continued to come from China and India. In China the use of mobile technology is now pervasive nationwide and utilised by most insurers. The highest growth rates were in personal lines such as life, health, travel, motor, credit, logistics and education. The life sector continued to deliver double-digit growth, whilst the non-life sector achieved single-digit growth. Most Chinese insurers are also leveraging digital technologies to increase sales and claims effectiveness, enhance connectivity and reduce operational costs. India experienced similar growth.

Online platforms, medical institutions and state enterprises have also emerged to provide a variety of insurance solutions addressing underserved market segments. In China, online offerings are more effective for products whose demand is driven by ‘need’ (e.g. motor and travel insurance), whilst offline channels are still more effective for products that ‘need to be sold’ to the customer (e.g. savings and annuities).

Competitive landscape

Thousands of mobile services continued to be deployed in China in the fields of e-payments, insurance, securities, credit, logistics, travel and many more. Disintermediation is expanding the options for providers and consumers. Almost all insurance companies are now involved in digitalization themselves through models of cooperation, outsourcing and acquisitions to increase operating efficiency and competitiveness.

From outside the industry, technology firms such as Alibaba and Tencent are entering the online insurance space through acquisitions, product innovation and their extensive ecosystems, and are competing aggressively against conventional insurers. With their larger databases, cutting-edge digital technologies and economies of scale, these technology companies pose a significant challenge to the established insurance industry.