Skip to main content
Journal Magazine: Informing Workplace and Facilities Management Professionals - return to the homepage Journal magazine logo
  • Search
  • Visit Journal Magazine on Instagram
  • Visit Journal Magazine on Twitter
  • Visit @Journal_Mag on Facebook
Visit the website of the Chartered Insurance Institute Logo of the Chartered Insurance Institute

Main navigation

  • Home
  • News
  • News analysis
  • Features
  • Study Room
    • A-Z
    • Question and Answer (Q&A)
    • Study Room Features
  • Opinion
  • CII Radio
  • Events
  • Digital Magazine
    • The Asia-Pacific Journal
Quick links:
  • Home
  • Features

Land of the rising yen

Share on
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print
Open-access content Monday 6th November 2017

Article hero image.

Jay Patel explains why increasing insurance penetration in Japan's revived economy provides an opportunity for commercial carriers.

'Abenomics', the term used to describe the economic policies advocated and implemented by the Japanese Prime Minister Shinzo Abe, has not been short of its critics and at certain points in Mr Abe's premiership, these critics have been able to point to lacklustre growth and inflation as validation for their scepticism. However, since 2016 growth has strengthened as a weaker yen and stronger global economy have boosted demand in the economy. Encouragingly, the composition of growth is exhibiting greater sustainability and diversity.

Specifically, Abenomics draws on 'three arrows' to stimulate growth in the Japanese economy: monetary policy; fiscal policy; and structural supply-side reforms.

Of the three arrows, monetary policy has been the most actively used by the government and central bank. The Bank of Japan's -0.1% base rate (already one of the lowest in the world), coupled with its quantitative easing programme means the financing environment for the Japanese corporate sector is very accommodative. It is hoped that this environment will stimulate the investment from the corporate sector required for the economy to reach a stable equilibrium where inflation reaches the Bank of Japan's 2% target.

COMMERCIAL BENEFITS

Japan's economic growth in the second quarter of 2017 was recorded at an annualised rate of 4.6% and demonstrates that monetary policy could be having the desired effect. Encouragingly, this growth was balanced with business investment and domestic consumption making strong contributions to the impressive growth figures, as well as the more traditional channel of net exports.

Business investment grew strongly during the second quarter, expanding by 2.4%. This followed a first quarter where investment in the non-financial sector was 4.5% higher on a year-on-year basis.

In addition, the Bank of Japan's closely watched Tankan index (a survey of Japanese business conducted by the Bank of Japan, which subtracts the percentage of companies reporting a bad business environment from those reporting a good business environment) rose to +22 for the manufacturing sector -- its highest level since 2007 -- exceeding the forecasted figure of +19.

General purpose machinery (+35), production machinery (+36) and electrical machinery (+27) were among the highest-scoring sectors in the manufacturing sector.

The index is a forward-looking indicator of confidence in different economic sectors so this is a positive signal for the prospects of sustained growth in investment in the economy.

Higher levels of confidence in these sectors are likely to translate to sustained growth in capital expenditures from the corporate sector. For commercial insurers and brokers, particularly in property, this should increase demand for commercial property policies as the net accumulation of capital by firms will increase.

PROPERTY AND LIABILITY MARKETS

Japan's non-life insurance penetration stood at 1.67% in 2015; this was lower than a number of similarly developed economies, including: the US (3.49%), the UK (3.37%) and France (2.64%). When one looks further into the data, one finds that motor insurance penetration in Japan is comparable to these other markets but it is in the property and liability lines that Japan lags behind its peers.

The lower levels of penetration in the Japanese market do reflect opportunities for insurers to enlarge their books and enrol more of the corporate sector into using the risk management and risk-smoothing benefits of insurance.

In a report on the Japanese commercial insurance market in 2017, Swiss Re estimated that Japan has the largest protection gap in the world. Although there are mitigating factors for the size of this protection gap unrelated to the lack of demand for commercial insurance relative to GDP -- such as the Japanese economy being more insular than comparable developed countries and having very high property values in region vulnerable to earthquakes -- it does seem that the Japanese commercial insurance market has substantial potential for growth independent of the cyclical effects of the economy.

OLYMPIC CONSTRUCTION WORK

The construction industry in Japan registered a +48 rating on the aforementioned Tankan index. This strong showing is in large part attributed to the infrastructure spending that is a result of Japan hosting both the Rugby World Cup 2019 and the 2020 Olympic Games.

Timetric's Construction Intelligence Center estimates in its most recent outlook, that the Japanese government has allocated ¥986.6bn ($8bn) to infrastructure spending for the Games.

The construction of stadia and arenas, as well as transport and residential infrastructure required for the Olympics, has generated a requirement for insurance policies to cover the physical assets and various liabilities among the contractors and sub-contractors that work on these projects. Figures from the General Insurance Association of Japan (GIAJ) show that direct written premiums (DWP) in the machinery and erection line grew from ¥32,149m ($265.6m) in 2015 to ¥36,209m ($332.8m) in 2016 (an annualised growth rate of 24.4%). Similarly, the contractors' all-risks line grew from ¥49,843m ($411.8m) in 2015 to ¥51,120m ($469.9m) in 2016, as measured by DWP.

TRAVEL INSURANCE

The Olympics and Rugby World Cup will increase visitors to Japan and boost demand for travel insurance.

A survey conducted by the Japan Tourism Agency which found that about 30% of people who visit Japan do so without travel insurance, demonstrates that Japanese travel insurers could capitalise on the underinsurance of inbound tourists.

There is evidence that Japanese non-life insurers have already taken action to expand their offerings in the travel insurance space. Agreements between insurers including Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance with travel and hospitability firms located in Japan are becoming more popular, along with more easily accessible direct digital offerings to tourists.

Non-life insurance penetration

You may also be interested in...

  • Insurance, the blockchain and the sharing economy
  • SWITCHING IT
  • NAVIGATING CHANGE
Filed in:
Features

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Today's top reads

BECOME A MEMBER

BECOME A MEMBER

SUBSCRIBE TO PRINT

SUBSCRIBE TO PRINT
The-Journal_NEW.png
​
FOLLOW US
Twitter
Facebook
Youtube
CONTACT US
Tel: +44 (0) 20 7880 6200
Email
Advertise with us
​

About the CII

About us
Membership
Qualifications
Events

The Journal

Digital magazine
Podcasts
Blog
News

General Information

Privacy Policy
Terms & Conditions
Cookie Policy

Get in touch

Contact us
Advertise with us
Write for The Journal
Want to receive The Journal?

© 2022 • The Journal Magazine is published by Redactive Media Group. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ