The risk of getting sick may soon be more important than the risk of dying, according to the life insurance industry.

As the population continues to gray, major domestic insurers are trying to grab a bigger piece of the medical and nursing-care insurance market, which has been dominated by non-Japanese insurers.

The effort comes as the market for life insurance has been shrinking since the collapse of several domestic life insurers in the late 1990s.

However, demand for “third-sector” insurance products, which include medical, cancer and care-related plans, is rising.

Third-sector products independently cover the gaps between life insurance and casualty insurance and are distinguished from the riders attached to life or casualty plans.

Domestic life insurers have traditionally been strong at selling comprehensive packages with higher premiums that typically include death benefits as the main component and medical coverage as riders.

“Whether (Japanese insurers) can stem a decrease in contracts depends on how much they can expand into a new business area, such as the third sector,” said Shiyo Imai, an insurance analyst at Moody’s Japan K.K., the Japanese unit of the U.S. credit rating agency.

Since the late 1990s, domestic insurers have been suffering from a flood of policy cancellations.

In fiscal 2001, the amount of money returned to those who canceled their policies peaked at 10.6 trillion yen, up from 7.8 trillion yen the previous year, according to the Life Insurance Association of Japan (LIAJ), which comprises 39 Japanese and non-Japanese insurers.

In fiscal 2003, it was 7.4 trillion yen.

The trend helped American Family Life Assurance Co. of Columbus, Ohio, replace Nippon Life Insurance Co. as the top insurer in the domestic retail market for the first time. As of the end of September, AFLAC held 169.2 million contracts, compared with Nippon Life’s 165.8 million.

AFLAC, long popular for its cancer plans, has increased contracts each year since it started operations in Japan in 1974.

“We have always surveyed customers’ needs and developed products based on it,” said Jun Shigematsu, a public relations manager at AFLAC Japan’s operations.

AFLAC, for instance, introduced a medical plan in 2002 with a relatively low premium that doesn’t rise during one’s lifetime. Demand for such products started growing before the government raised out-of-pocket medical expenses in 2003, Shigematsu said.

The American firm is able to offer low premiums because it is intensively focusing on the third-sector and reducing costs, he said.

The third-sector was long a niche market in Japan mostly dominated by American insurers and small domestic operators.

Under a controversial agreement with the United States in 1996, Japan agreed to keep certain limits on Japanese insurers’ entry into the market until 2001 to protect American interests.

At the end of last September, the number of third-sector contracts passed 30 million, compared with 20 million at the end of March 1995, according to LIAJ. Such contracts accounted for 27.5 percent of the overall retail insurance contracts, up from 15.7 percent a decade ago.

Competition has been growing since the pact expired in 2001, allowing nonlife insurers into the third-sector as well.

Domestic life insurers have been trying harder to target the older and wealthier generations than they did in the past. But now their emphasis is on medical coverage, instead of death benefits.

In March, for instance, Asahi Mutual Life Insurance Co. started offering medical plans that cover operations to prevent varices. The plans, which also offer minimum life insurance coverage, are targeted at people aged 30 and over, particularly seniors.

“They can afford to enjoy their life,” Managing Director Yoshiki Sato said. “But they are also worried about their future, because life expectancy is becoming longer on average.”

Demand for standard life insurance is not very strong, particularly among people aged 50 and over, because their offspring are usually economically independent, Sato said.

In January 2004, Dai-ichi Mutual Life Insurance Co. introduced lifelong medical insurance that doesn’t require premium payments if policyholders need nursing care.

Last year alone saw more than 170,000 contracts sold. This helped increase the overall number of Dai-ichi products sold to those 45 and over by 50 percent over the previous year.

Nippon Life meanwhile plans to set up an in-house section to study medical statistics for the development of third-sector products, said Senior Managing Director Kunie Okamoto, who will become president on April 1.

Despite the moves, major domestic insurers are cautious about shifting to stand-alone sickness plans, because they are saddled with huge armies of traditional saleswomen who lack expertise but are nevertheless considered vital to their business, Moody’s Imai said.

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