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The big data stakes of Rakuten's small nonlife foray

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The big data stakes of Rakuten's small nonlife foray

Under other circumstances, Nomura Holdings Inc.'s sale of a small nonlife insurance unit in Japan would have caused only a passing ripple of excitement in a local market dominated by Tokio Marine Holdings Inc., MS&AD Insurance Group Holdings Inc. and Sompo Holdings Inc. But in this case, the acquirer of Asahi Fire & Marine Insurance Co. Ltd. is Rakuten Inc., Japan's e-commerce titan, bringing fresh expectations that the country's nonlife market could be on the cusp of big technological change.

As a result of its first foray into nonlife M&A, Rakuten, whose business spans an array of online services beyond e-commerce including Rakuten Life Insurance Co. Ltd. and Rakuten Bank Ltd., will only gain a 0.4% share of total premium income in Japan. But Rakuten says the tender offer for Asahi Fire, which closed March 13, will enable it to deploy its "big data" arsenal of customer information and technology to help Asahi shake up Japanese nonlife.

Other nonlife newcomers have had similar ambitions in a market that Moody's Investors Service says is dominated by the big three, which combined account for more than 85% of nonlife premiums written in the country.

Is Rakuten's arrival in nonlife a tipping point for the segment? "Rakuten surely is a threat to us and may have a strong impact," Hiroshi Takano, senior deputy manager of investor relations at Sompo Holdings. "We have to see how Rakuten will combine its direct internet sales channel with its big e-commerce customer base and Asahi's offline agencies channel."

Online plus offline

With its acquisition, Rakuten will immediately have what many other online nonlife challengers don't — an ability to combine its high-tech know-how with a brick-and-mortar advantage thanks to Asahi Fire's national network of 2,600 sales agents, Chiemi Kobayashi, a Rakuten spokeswoman, said.

Agents hired by insurers to sell their products accounted for 91.6% of all direct premiums from policies sold in 2016, compared to 0.5% from brokers and 7.9% from direct distribution, according to figures from Timetric, a provider of sector-focused market data and advisory services.

"These market shares have been more or less static for the last decade," said Jay Patel, an insurance analyst at Timetric, adding: "A major reason for the dominance of the agency channel is that the regulatory environment is much more accommodative for agencies compared to brokers in Japan."

Meanwhile, Rakuten, having run an online shopping marketplace since the late 1990s, is now sitting on lots of data from lots of customers — with more than 1.2 billion individual and corporate "members," many of whom are part of the Rakuten Super Points loyalty program which enables them to move easily between services. For the 70 types of services around the world that Rakuten is involved in, this translates into numerous cross-selling opportunities.

An integrated online-offline approach "may facilitate the efficient and effective sharing of Rakuten's consumer data that will feed into Asahi's underwriting models and therefore assist in the more accurate pricing of policies," Patel said. "The combination of better pricing and convenience could prove popular with consumers and make them more open to purchasing insurance directly online."

A road less traveled

One traditional product line where Rakuten could put its data and technology to use is auto insurance, which accounts for around half of total property and casualty premium income in Japan.

In the auto space, Soichiro Makimoto, a senior insurance analyst at Moody's Japan K.K., believes Rakuten's high-tech pedigree augurs well for an insurance market that is lagging other parts of the world in embracing leading-edge telematics technology. Often dubbed "black boxes," telematic devices can be installed in cars to monitor distances driven, speed, braking tendency and other information that influences a policy's pricing.

"Japan has been slow to introduce telematics because the three major insurers that benefit the most from the status quo have had little incentive to innovate," Makimoto explained.

Rakuten has yet to reveal whether it has set its sights on telematics. The immediate post-M&A plan is to continue offering Asahi's current auto insurance products, Kobayashi said. "Our advantage will be the data from our … members, which will help us offer cheaper and more tailor-made nonlife insurance products," she added.

Just how much of a sector game-changer that data will be remains to be seen. But what is clear is that the Asahi brick-and-mortar deal — though remarkably low-tech for a company often compared to Amazon.com Inc. and Alibaba Group Holding Ltd. — is one of a bevy of recent investments, from cryptocurrency to cellphone networks, taking Rakuten into uncharted territory.

"The main reason for Rakuten's acquisition of Asahi Fire & Marine is to expand its financial services portfolio and preserve earnings growth while continuing to embark on an aggressive expansion strategy across a number of different verticals," Timetric's Patel said.