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Online insurer Lifenet faces difficult market as Japanese still prefer traditional sales channels

LifenetInsurance Co. Ltd., the biggest purely online life insurancecompany in Japan, has seen its growth slow as competition in the sector heats upand Japanese consumers continue to prefer face-to-face sales when it comes tolife insurance products.

Lifenet saw steady growth from its launch in 2008 until thefiscal year ended March 31, 2012, but its new business in terms of policiessigned and value of annualized base premiums has been shrinking for the pastfour fiscal years. Lifenet's new business peaked at 60,725 new policies in thefiscal year ended March 31, 2012, and was at 25,150 policies in the fiscal yearended March 31.

The greatest challenge facing Lifenet may be that Japanesepeople still prefer to buy life insurance policies from sales agents ofwell-known Japanese insurance companies.

"It's strange that Lifenet is not able to increase itsbusiness by offering cheaper insurance premiums, but Japanese people stillprefer to buy insurance from a sales agent," said Yasuo Kofuji, insuranceexpert and finance professor at Senshu University in Tokyo, in an interview.

The company is finding it difficult to win the public'sconfidence in a long-term product like life insurance, unlike auto insurance,which customers have to renew every year, said Makoto Sekiya, a Lifenetspokesman. "It is true that we lack brand recognition, so we are makingsteady efforts to let people know about our company and products," thespokesman said.

Lifenet has maintained a 0.14% market share in Japan's lifeinsurance market for the past three fiscal years in terms of total number ofpolicies in force. The overall online life insurance sector is also small,making up less than 1% of the life insurance market in the country.

An inherent issue facing online companies like Lifenet isthat they have a passive business model and have to wait for customers to go tothem, unlike traditional life insurers that have sales ladies or life plannersto go after customers. Overcoming that hurdle will be challenging for Lifenetand other purely internet insurers in Japan, which cannot rely on traditionalsales channels to make up for faltering growth in the online market.

Competition in the online life insurance sector is alsoheating up. AXA Direct Life Insurance Co. Ltd. and Lifenet were the only twoonline life insurance companies until 2011. Since then, at least seven newcompanies have been established. "There are more online life insurancecompanies now than before, so unless you have a strong brand name, you cannotgrow in this competitive market," Kofuji said.

A growing number of companies have started online insuranceoffshoots or begun using the internet as a sales channel. Lifenet has tocompete with names like e-commerce company Rakuten Inc. and financial servicescompany SBI Group, whose online life insurance companies benefit from thebrands of their parent companies, said Teruki Morinaga, an insurance analyst atFitch Ratings.

To fend off these challenges, Lifenet entered into a tie-upwith major telco KDDI Corp., owner of the au brand in Japan. KDDI took a 15.95%stake in Lifenet in April 2015, enabling the life insurer to use the telco's aubrand name and potentially capture some of its 30 million-strong customer base.

However, that is unlikely to lead Lifenet to reverse itsdecline in growth. "I do not think [the tie-up with KDDI] will increaseLifenet's brand recognition or enable them to match their peak annual sales of60,000 new policies, which was their peak a few years ago," said aninsurance analyst at a foreign securities firm who declined to be named."The best exit option for Lifenet may be to sell out to a major life insurancecompany," the analyst said.

But becoming a subsidiary of a major Japanese insurancecompany could mean Lifenet would lose control over its own business strategy.This is why Lifenet chose a tie-up with KDDI instead, Morinaga noted.