Fifth in an occasional series on the Big Bang financial reforms
The fact that most Japanese consumers understand the importance of life insurance means the domestic market holds great potential for more business opportunities with further deregulation, according to the head of the Prudential Life Insurance Co.
Ichiro Kono, president and chief operating officer of Prudential, said in a recent interview that increased competition in the Japanese insurance sector will be unavoidable once various deregulation steps outlined by the government begin to take effect.
“Nearly 95 percent of Japanese households have life insurance — one reason why some say the market is saturated,” Kono said. “But if you ask me whether they have all bought the policies they need, the answer is a flat ‘no,'”
As a result, he said, the business opportunities for his firm are vast because it can offer tailor-made products to supplement what is lacking in the insurance policies that consumers already have. The high rate at which life insurance is accepted in Japan signifies that this is a market where consumers have a fairly good knowledge of insurance and have become aware of their insurance needs, Kono said.
The domestic insurance market is expected to undergo huge changes in upcoming years as financial reforms under the government’s “Big Bang” initiative — as well as market-opening measures agreed to under a deal with the United States last December — shake the foundations of this relatively heavily regulated sector.
These reforms will eventually pave the way for greater mutual entry among various financial institutions and encourage more product innovation. Kono pointed out that the abolition of insurance business regulations would force firms into competition, and that insurers which fail to be original and creative will be left behind.
But Kono maintained that although the business situation might drastically change in Japan with the Big Bang, his firm would stick by its traditional way of doing business. “Of course, deregulation means that (companies) will be able to venture into various fields,” he said. “Nevertheless, we are not considering a break from our (current) business style.”
The firm sells its policies through representatives called “life planners,” who discuss the needs of individual customers before offering a policy they consider tailor-made for that person. In the future, insurers in Japan will be able to market a wider range of products, but Prudential even now has the ability and the sales channels to use such an environment to its advantage, according to Kono.
He said the sum payable at death under many life insurance policies is insufficient to cover the financial needs of those left behind, and that one key objective of his firm is to offer insurance policies that make up for such shortfalls.
Prudential Life Insurance Co. was set up in Japan in October 1987 by The Prudential Insurance Co. of America, the core firm in the New Jersey-based financial conglomerate The Prudential. For the year that ended in March, the company had total assets of 173.8 billion yen, up 45.5 percent from the previous business year, the greatest year-on-year growth in assets for fiscal 1996 of the 44 member firms of the Life Insurance Association of Japan.
That growth was experienced in a business year in which the combined total assets of the 44 life insurers managed only a scant increase of 0.6 percent — the lowest growth ever. Industry officials have largely attributed the low growth to a rise in cancellations of group annuity insurance policies after a reduction in their assumed rate of interest.
The collapse of medium-size life insurer Nissan Mutual Life Insurance Co. this spring has also led to an increase in concern among consumers over the stability of the nation’s life insurers.