Last in our series on financial deregulation

Staff writer

Deregulation has brought drivers in Miyagi Prefecture a surprise gift.

On April 1, a Japanese subsidiary of the Illinois-based Allstate Insurance Group began selling auto insurance policies at discounts of as much as 40 percent off standard rates — only for Miyagi drivers.

Allstate Property and Casualty Insurance Japan Co., a 100-percent owned subsidiary of the second-largest nonlife insurer in the United States, plans to eventually offer its policies nationwide. But for the time being it will limit the service to Miyagi, partly because of the prefecture’s low accident rate.

“Miyagi Prefecture is a good prefecture for us to start in because it has over a million cars. It’s a large marketplace,” said Tom Rafiner, president of Allstate Japan. “They have a high number of cars per household, and drivers in that prefecture have very good driving habits.”

Allstate is the latest in a series of foreign insurance firms banking on Japan’s insurance market deregulation. The U.S. insurance group, which has assets worth some $80.9 billion, is the second-largest U.S. nonlife insurer on a premium income basis.

A U.S.-Japan insurance accord in late 1996 paved the way for the introduction of the so-called differentiated-rate auto insurance starting in September 1997. Now insurers can set premiums depending on individual risk factors, such as age, sex, car type, driving purpose, driving record and region of residence.

Rafiner said deregulation enhances opportunities for every firm and provides good news for consumers.

“Over the last several decades, Japanese consumers have not had an opportunity to see clear differences between companies,” he said. “With deregulation, every consumer in Japan has a choice: They can stay with the company they are with, or they can move to another company.”

Japanese firms were previously opposed to differentiated-rate insurance, claiming it could dramatically drive up premiums for young, inexperienced drivers to the extent they can’t afford insurance.

But Rafiner said the rates should reflect individual risk factors as much as possible, adding that, in a completely open and competitive environment, the needs of risky drivers will also be taken care of.

“As the marketplace starts to evolve, I can guarantee you that there will be a company that is going to try and meet the needs of that driving group.” he said. “I view that as an opportunity, not something that the driving public should be worried about.”

One big factor that differentiates Allstate from Japanese nonlife insurers is that it will not use agents. All orders will be taken through toll-free phone calls.

Skeptics argue that this system is bound to lack the comfort drivers need after being involved in accidents. But Rafiner is confident about customer satisfaction, saying that once Allstate handles a claim, the same person stays with it from beginning to end, including out-of-court settlement negotiations.

Recent statistics compiled by the Marine and Fire Insurance Association of Japan show that four top nonlife insurers — Tokio Marine & Fire Insurance Co., Yasuda Fire & Marine Insurance Co., Mitsui Marine & Fire Insurance Co., and Sumitomo Marine & Fire Insurance Co. — are emerging as winners of deregulation. Their market share out of 15 major and second-tier auto insurance companies edged up to nearly 50 percent in fiscal 1998, while smaller firms felt the pinch.

Rafiner himself doesn’t see threats to his tiny company, which started up a year ago with seven people and now has only 40 staffers. Although large firms have an advantage, small firms can succeed if they find a niche, he said.

“Large companies have got this unbelievable size,” he said. “That’s to their advantage.”

But very small companies, like the Allstate unit, have their advantages, too, because they are unbelievably small and very focused and can be very fast, he said.

“So for the (midsize) companies that are caught in the middle, they will have to really understand what the customers want … and to be able to cut the cost so they can compete on a price basis in the marketplace.”

Rafiner refused to give any numbers for Allstate Japan’s sales target. But he instead pointed to an article he came across some time ago that predicted that drivers buying insurance direct from insurers will come to 15 percent of the market within the next five to 10 years.

“We intend to be the No. 1 company of that marketplace,” he said.

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