Japan: Opportunities for insurers in the grey area

_{Adrian Stones, Head Life & Health Reinsurance Japan, shared his thoughts with Asian Insurance Review.} 

As of 2021, one Japanese person in every 1,450 was aged over 100, according to the World Economic Forum (WEF). More recently in 2023, WEF said that more than one in 10 people in Japan were aged 80 or over and “almost a third of its population is over 65”.

At the same time, during a 2023 press conference, the prime minister of Japan said the “number of births in 2022 was 799,700, an all-time low”. According to news channel CNN, the country’s fertility rate dropped to 1.2.

“Japan has a shrinking and greying population that is increasingly single with lower fertility rates,” Swiss Re head life & health reinsurance Japan Adrian Stones said, speaking to Asia Insurance Review.

“While it is challenging to point out new opportunities opening up in the next 12 months, we can say, with a high degree of confidence, that long-standing trends largely driven by demographic shifts, but also reflecting societal changes, will continue into the foreseeable future,” Mr Stones said.

Japan’s life and health market is a “challenging, highly competitive and mature” one, he said. To leverage these opportunities, insurers would need to leverage the value chain to produce gains and “win domestically”. This, he said, would include “financial reengineering and technology-enabled innovations”.

For instance, Mr Stones believes that as the Japanese gear up for 100-year lifespans, needs for medical and expense coverage would expand, resulting in the health market growing faster than other sectors.

“Consumers’ needs of product types have also been expanding from traditional mainstream types, such as cancer coverage, to newer needs, including long-term care products and disability protection.

“Central to all these changes, there is a pressing need for insurers to find new ways to attract younger consumers at the start of their lives and generate real customer lifetime value,” he said.

Demographic and societal changes in Japan mean that consumers do not “necessarily pass through the conventional life milestones of landing a full-time job, getting married, having children and retiring”, Mr Stones said.

“Future competitive white spaces emerge as insurers evolve with changing consumer demands and offer tailored and flexible solutions that align with their lifestyles. The shift towards consumer-centric models also underscores the necessity of innovations that offer more personalised and engaging consumer experiences,” he said.

The Japanese Financial Services Agency (FSA) has implemented regulations and activities to encourage innovation in the financial industry, including the life and health insurance sectors, according to Mr Stones.

“For example, they have developed regulations allowing insurance groups to operate InsurTech subsidiaries,” he said. FSA established the Fintech and Innovation Office to support innovation as well.

In March 2024, FSA also held the inaugural Japan Fintech Week to bring together the global fintech community to “engage, connect and collaborate on issues relating to the development of financial services, public policy and technology”.

While AI and generative AI “are generating considerable interest in terms of pushing the boundaries of how technology can support the life and health insurance industry”, according to Mr Stones, he also said that Japan was still “at the exploratory phase”.

At this time, he said, the Japanese insurance industry “(is) trying to determine appropriate use cases for AI and geenrative AI and doing so largely through limited, smaller-scale internal ‘test and learn’ pilots”.

Such an example, he said, was wearable technology that allows the passive collection of “vast amounts of potentially predictive health metrics and behaviour”.

For instance, he said, Swiss Re partnered with a data services provider in medical statistics to “advance innovation in risk calculation using wearables data”. A risk calculation model was co-developed for quicker and more precise underwriting and pricing, he said.

“This partnership enables the development of holistic (re)insurance products using wearables data, which combine clinical factors with lifestyle factors, such as sleep and exercise, to enhance the product propositions in the [Japanese life and health] market,” he said.

Mr Stones also observed that the increasing usage of wearable devices in Japan offered an opportunity for insurers to play a more important role in engaging consumers to lead healthier lifestyles.

As Japanese insurers are “increasingly facing labour shortages”, according to Mr Stones, there are challenges in training underwriters.

“As a result, more and more cases are accepted or rejected based on straight-through processing, bypassing the older training approach where underwriters started with simpler cases,” he said.

These challenges, he said, are “compounded by the need to provide a clear and fast assessment of an application, as well as effectively handle processing ‘peaks’ following new product introduction”.

Mr Stones believes that due to these challenges, there could be potential for solutions powered by digital technology to help enhance the insurance value chain’s efficiency.

For instance, he said, the use of digital technologies, including AI, “can empower insurers to innovate and offer enhanced product propositions and improved customer experience”.

Moreover, to make data and analytics impactful to the insurance industry, he believes that integrating technology with risk knowledge would be crucial.

“Technology will eventually enable the insurance industry to automate tasks that require human intervention, analyse vast data sets and draw conclusions, and consequently improve risk assessment and pricing. This ultimately brings value to consumers by making insurance more accessible and affordable,” he said.

How can insurers work with InsurTechs to innovate and create new products?

“While the InsurTech space in Japan is not necessarily as active as those seen in other advanced insurance markets, it is attracting ever greater attention in Japan and there are still many opportunities to be explored and exploited for the benefit of customers, while also addressing efficiency and productivity improvements for insurers,” Mr Stones said.

For instance, he believes InsurTechs bring new ideas and perspectives to age-old challenges in the insurance industry.

Digital transformation is also a top priority for Japan-based life insurers, he said, with the trend being expected to “continue for some time”.

To effectively respond to the trend – as “it will only work when a new, highly touted tech-enabled solution is deeply rooted in a specific client need or use case” – he said insurers should look into what new value it wants to generate for consumers, the industry and society overall.

“It is this unswerving fixation on client-centricity that can allow any insurer to optimise its ability to work with InsurTechs, since both entities would be aligned on a common, valuable objective, allowing them to overcome differences in culture and operating models that often exist between InsurTechs and more traditional insurers,” he said.

_{This article was first published on Asia Insurance Review.}