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New needs in Japan's aging society offer opportunity for P&C insurers

In a move to diversify from their heavy dependence on auto insurance, P&C insurers in Japan have been widening product offerings to cover risks posed by the country's rapidly aging society.

Unlike the life insurance market, premium income for the P&C insurance industry has been growing for five straight years since 2011, according to data from the General Insurance Association of Japan, a local industry body. This trend was largely a result of the earthquake and tsunami in March 2011 prompting people to buy additional P&C insurance policies.

Within the P&C sector, auto insurance makes up about 44% of total premiums, according to data from the General Insurance Association of Japan, but growth in the segment is expected to shrink as the population ages and takes more people off the roads.

Moreover, Japanese specialty insurance markets remain underdeveloped, partly because there is less litigation risk in Japan compared with countries like the U.S., Teruki Morinaga, an insurance industry analyst at Fitch Ratings, told S&P Global Market Intelligence.

"Japanese P&C insurers have tried to diversify to specialty insurance from commodity products such as auto insurance for more than a decade," Morinaga said.

"Over the long term, the number of drivers are falling, because of Japan's shrinking population. Given that income from auto insurance, including compulsory insurance required by the government, accounts for more than half of all premium income of the P&C industry, development of new products that could create new demand is quite important for the industry's future," said Nobuyasu Uemura, an insurance industry analyst and partner at Capitas Consulting.

Meanwhile, incidents of elderly people with dementia wandering onto railway tracks have been reported, resulting in delays, and potentially leading to millions of yen in damages, creating a window of opportunity for insurers looking to diversify.

MS&AD Insurance Group Holdings Inc. in early January began offering a product covering financial damages suffered by rail companies due to train delays that do not arise from an actual accident. MS&AD's new product is notable as it is the only one on the market to cover train disruptions that do not involve actual accidents. In March 2016, Japan's Supreme Court ruled that the family of an elderly man who wandered onto train tracks, causing service disruptions to the JR Tokai line, was not liable for compensation claimed by Central Japan Railway Co. The man, who suffered from dementia, was killed by a train.

Dementia is a significant issue facing Japanese society, where more than a quarter of the population is 65 years old or above. The Ministry of Health, Labour and Welfare estimates that about 8.4% of all elderly people in the country suffered from dementia in 2015, with the ratio likely to reach 8.9% in 2020.

While there is no segment-specific data pointing to the growth of the elderly insurance market, the General Insurance Association of Japan categorizes premiums generated from this segment under the "new" category, which covers most specialty products available in the country.

Premium income from the "new" category rose for eight consecutive years to March 2016, growing 42% in the last 10 years, according to General Insurance Association of Japan data. In comparison, the auto insurance segment grew just 13% over the last decade. And in the six months ended September 2016, premium income for the "new" category rose 7.6% year over year, while auto insurance premium income grew by 1.9%.

To be sure, the auto segment, at ¥3.991 trillion, dwarfs the "new" category's ¥1.177 trillion in premiums as of March 2016.

Aside from MS&AD, Tokio Marine Holdings Inc. unit Tokio Marine & Nichido Fire Insurance Co. Ltd. in December 2016 began insuring against claims of leaks made by guardians of their elderly wards' personal information. Guardians in Japan gained access to their wards' confidential information and correspondence in October 2016, in line with a revision to Japanese privacy laws on personal information.

"We find opportunities to help provide safety where there are challenges, and develop new products," a Tokyo Marine & Nichido spokesman said.

Meanwhile, Sompo Holdings Inc. released a product in May 2016 to protect guardians against physical damages caused by their elderly wards on others, according to a Sompo spokeswoman. Prior to that, products available on the market only covered instances where elderly people were hurt by their guardians, The Nikkei reported.

"Changes in society always create new demand," Morinaga noted, pointing to Japan's aging population as a type of societal change that would create new opportunities for insurers.

As of Feb. 20, US$1 was equivalent to ¥113.11.