The “Big Bang” reforms planned for the Japanese insurance industry compare poorly with those of the banking and securities sectors. Nevertheless, they will still do much to raise the attractiveness of the nation’s insurance market, according to the head of CIGNA Accident and Fire Insurance Co.
Jonathan Newton, representative director and president, said the reforms suggested in June by the Insurance Council, an advisory panel to the finance minister, lacked the boldness to achieve what Prime Minister Ryutaro Hashimoto last November ordered — to make the nation’s markets “free, fair and global.”
Newton was not alone in his evaluation, as many observers found the insurance reforms less wide-ranging than those proposed by other advisory bodies to enhance the business of banks and brokerages.
At the time the proposals were released, many analysts attributed the gap to the relative competitive weakness of domestic insurers that required them to be sheltered for a while longer than other financial firms.
“The (Insurance Council’s) report largely hedged on the critical reforms that were needed — specifically, eliminating prior approval of products and rates, elimination of the Antimonopoly Law exemption for rating bureaus and enhancing financial disclosure,” Newton said.
The June report says “minimum supervision,” including the prior approval system for products and premium rates, should be maintained “from the viewpoint of consumer protection and soundness of insurance companies.”
The obligation for insurers in Japan to use premium rates calculated by so-called rating organizations is to be abolished next July, but the rating bodies will remain exempt from antitrust law.
“We are not unhappy (about the deregulation measures), but we would like to see a little bit more. And it is not just the foreigners who are insisting on these reforms, it’s the Japanese, too — it affects all of us in the same way,” Newton said.
But he added that excessive regulation was not the only factor behind the reputation the nation’s financial markets have for being below global standards.
He cited such traditional private industry behaviors as the desire to stay “with the pack,” not wanting to differentiate or compete on prices or introduce new products, and the cozy “keiretsu” business relationships in corporate Japan that guarantee certain customers for member firms.
“It’s (the behavior of) just trying to be plain vanilla, so to speak,” he said, and indicated that such an atmosphere could be seen not just in the financial sector but also in other Japanese businesses.
CIGNA Corp., a Philadelphia-based holding company whose subsidiaries provide insurance and other financial services, was formed in 1982 through the merger of two U.S. insurance firms — INA Corp. and Connecticut General Corp.
CIGNA Accident and Fire logged premium revenues of 38.76 billion yen in fiscal 1996, while company figures show that in 1996, nonlife business in the Japanese market accounted for 17 percent of CIGNA’s international business.
Newton, appointed to his current post in July 1996, stressed that there were many opportunities for his firm in such areas as new product innovation as the deregulation effort gathers steam in Japan.
“We will probably utilize our overseas offices and network to bring in products which have been successful in other markets in the world, especially Asia,” he said.
The company is now in the process of identifying opportunities in niche markets where it has the potential of gaining an edge. Accident and health care are some areas CIGNA is looking into, as well as the packaging of property and casualty insurance for select customer segments, according to Newton.
“Niche markets are going to be a big area. It’s not a big area for the Japanese (insurers) because it’s so small, but for someone like us, it’s a tremendous area to work in,” he said.
Newton also predicted that on the heels of deregulation there would be an increase in foreign interest in Japan’s insurance market. Newly formed nonlife subsidiaries of Japanese life insurers that are hungry for business will innovate and try to break away from the pack.
Strategic partnerships among insurance firms, both domestic and foreign, will probably arise, as will merger and acquisition activity in the sector, he said.
The Big Bang will bring about a totally different marketplace in Japan that will be good for the consumer and good for everyone, he maintained.
“True deregulation, which opens up choices for consumers, is bound to activate markets and help the Japanese economy recover, especially the financial side of the economy.”