FALIA Invitational Seminar in Japan Risk Management Course Overview of Life Insurance Industry in Japan September 6, 2017 Hirofumi Kurata Chief International Affairs Dept. The Life Insurance Association of Japan
Contents About Brief History of Market Development Demographic Change / Ageing in capacity building 2
About 3
About Who we are: An unique industry body : represents all operating insurers in Japan A voluntary group : Life insurers are not mandated to join is funded by member contributions A business association with over 100 years of history : is not mandated to regulate/supervise members serves as a platform for member cooperation 4
About Our goal: aims to promote the industry s sound development and maintain its reliability, thereby contributing to improving quality of national life To this end, focus its activities on areas such as - public policy discussion - compliance (conduct of business, AML/CTF, etc) - solicitor education - disclosures/consumer confidence - dispute resolution s activities reflect hot issues for the industry 5
About What we do: Recommendations on public policy discussion Inputs to standard setters Development of voluntary guidelines Administration of common-to-industry education programme Development of voluntary public disclosure model ADR (Alternative Dispute Resolution) Anti Moral Hazard measures Social Service Activities 6
Brief History of Market Development 7
Brief History Market Development Total Premium Income to GDP (actual) 40,000 35,000 30,000 25,000 Proportion of total premium income to GDP 4.69% 6.08% 6.13% 5.28% 5.62% 7.14% 7.56% 8.00% 7.00% 6.00% 5.00% 20,000 15,000 10,000 5,000 0 3.34% 37,748 27,321 30,762 34,454 2.39% 2.61% 26,941 28,333 1.53% 1.06% 15,480 Premium Income 8,226 92 255 1,800 3,981 1955 1960 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 4.00% 3.00% 2.00% 1.00% 0.00% Source: Cabinet Office, Ministry of health labor and welfare, The Life Insurance Association of Japan 8
Brief History of Market Development Changes in Product Portfolio (the number of new policies) 100% 11.38 9.80 12.37 16.89 13.25 11.78 8.95 6.98 11.12 90% 1.62 20.99 18.64 0.77 4.30 0.10 21.87 18.91 10.05 1.78 5.13 7.97 13.50 8.75 1.28 35.47 80% 1.23 1.57 8.61 14.36 3.86 13.58 70% 7.70 21.16 12.32 33.30 1.49 33.78 60% 5.51 14.71 35.43 17.69 10.53 50% 23.00 87.00 81.81 83.35 12.24 77.78 79.36 22.45 31.53 40% 73.79 27.75 24.88 30% 23.02 47.00 12.67 24.55 20% 36.64 17.73 9.29 12.48 10% 14.52 17.68 12.51 9.83 12.63 8.98 4.58 0% 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Endowment Term Whole Life Medical Annuties Others Source: The Life Insurance Association of Japan 9
Brief History of Market Development What brought those changes? Economic climate : economy affects consumers capacity and appetite Sophisticated medical technology : growth in consumers appetite for medical coverage Demographic change / Ageing : less younger population and more elder population 10
Brief History of Market Development Economic Climate : economy affects consumers capacity and appetite In the last 50 years, Japanese economy: enjoyed breezy climate in 1970 s; was overheated by heat wave in 1980 s; was hit by a perfect storm in 1990 s; suffered damp climate in 2000 s; still suffers prolonged damp climate in 2010 s. Low interest rate environment would not change in the last couple of decades, however, it will not last forever. 11
Brief History of Market Development Sophisticated medical technology : growth in consumer s appetite for medical coverage Sophisticated medical technology enabled: longer life; earlier detection of cancer; broader application of advanced medical treatment. Statistics revealed the fact that more than 25% of the population dies because of malignant tumor (e.g. cancer) (28.7%), followed by heart disease (15.2%), pneumonia (9.4%), cerebrovascular disease (8.7%). 12
Brief History of Market Development Demographic change / ageing : less younger population and more elder population Mass retirement of baby boomers was observed in 2000 s In ageing society, those retired need to be self-reliant in their life after retirement Those retired looked for investment opportunities that would be appropriate for the purpose of long-term retirement saving People seek for investment opportunities that are less risky than active investment and more profitable than deposit 13
Demographic Change / Ageing Is it a challenge? Or is it a potential for growth? 14
Demographic Change / Ageing Ageing - less younger population, more elder population < Population demographics> 14,000 12,000 10,000 8,000 6,000 Aged 75 or over Aged 65-74 Aged 20-64 Aged 19 or under Population aging rate (aged 65~ to the total population) 12,361 12,557 12,693 12,777 12,806 12,660 12,410 12,105 12,066 11,706 11,662 37.7 11,194 11,212 10,728 10,467 10,221 9,921 9,708 9,430 36.1 9,008 33.4 8,411 31.6 30.3 29.1 26.8 23 20.2 38.8 39.4 39.9 9,193 8,674 45.0 40.0 35.0 30.0 25.0 20.0 4,000 2,000 4.9 5.3 5.7 6.3 7.1 7.9 9.1 10.3 12.1 14.6 17.4 15.0 10.0 5.0 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 0.0 Source : The Ministry of Internal Affairs and Communications; National Institute of Population and Social Security Research Note: The total population from 1950 to 2010 includes the population of uncertain age. 15
Demographic Change / Ageing Ageing - less younger population, more elder population < Population pyramid> Aged 65 M F M F M F Aged 15 1980 2010 2040 Source : For the figure of 1980, Population Census, The Ministry of Internal Affairs and Communications For the figure of 2010 and 2040, The result of the medium variant projection under Population Projection for Japan (as of January 2012), National Institute of Population and Social Security Research 16
Demographic Change / Ageing Ageing - less younger population, more elder population 4 3.5 3 < Fertility rate and number of births> 5000000 4500000 4000000 3500000 2.5 2 2.13 1.91 3000000 2500000 1.5 1.26 1.42 2000000 1 2337510 1606040 1934240 1576890 0.5 1221590 1,190,550 1,071,300 1730690 1823700 1901440 1431580 1,187,060 1,062,530 1,003,539 0 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 1500000 1000000 500000 0 Number of births Fertility rate Source: Cabinet Office, Declining Birthrate White Paper 2015 17
Demographic Change / Ageing Ageing - less younger population, more elder population < Trend in the percentage of unmarried by age bracket> Men Women 80 70 % 70 60 50 40 30 20 10 0 1960 46.145.7 46.548.3 55.1 9.9 11.1 11.7 14.3 14.2 8.5 3.6 4.2 4.7 6.1 1965 1970 1975 1980 64.4 66.969.3 60.4 37.3 71.471.8 47.147.3 42.9 32.6 30 28.1 25.7 21.5 22.6 19 1985 1990 1995 2000 2005 2010 35.6 25-29 years old 30-34 years old 35-39 years old % 60 50 40 30 20 10 0 1960 24 20.9 21.719 18.1 30.6 40.2 48 19.7 54 26.6 13.9 13.8 9.4 10.4 9 9.1 10 7.2 7.7 5.4 6.8 5.8 5.3 5.5 6.6 7.5 1965 1970 1975 1980 1985 1990 1995 2000 2005 59 60.3 32 34.5 Source:Population census by the Ministry of Internal Affairs and Communications 18.4 2010 23.1 25-29 years old 30-34 years old 35-39 years old 18
Demographic Change / Ageing Ageing Population in the World < Europe and North America > < Asia > (%) Actual figures Estimated figures (%) Actual figures Estimated figures 45 (2015) (2015) 40 35 30 25 20 Japan (26.7) 45 Japan (26.7) Italy (22.4) China (9.6) Sweden (19.9) 40 India (5.6) Spain (18.8) Indonesia (5.2) Germany (21.2) 35 Philippines (4.6) France UK USA (19.1) (17.8) (14.8) 30 Korea Singapore Thailand (13.1) (11.7) (10.5) More developed regions (17.6) 25 More developed regions (17.6) Less developed regions (6.4) Less developed regions (6.4) 20 15 15 10 10 5 5 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 Source : United Nations; The Ministry of Internal Affairs and Communications; National Institute of Population and Social Security Research 19
Demographic Change / Ageing What does ageing means to the industry? More elder population : do they still have purchasing power? If yes, how can we encourage their purchase? More un-married population More families with less children : do they have less risks to be insured than married? do they have someone who will take care of them in their old-age? If not, how can we raise their awareness? 20
Demographic Change / Ageing Amounts of Savings per Household (million yen) 30 25 Savings(million yen) Yearly income(million yen) 24.14 24.82 20 17.82 15 10 5 2.51 4.89 6.89 6.17 10.45 7.41 8.13 5.7 4.54 0 ~29 30~39 40~49 50~59 60~69 70~ Source: Family Income and Expenditure Survey (2013), Ministry of Internal Affairs and Communications 21
12 Demographic Change / Ageing Medical Expenses (a) Hospitalization Rate by Age Group (%) (Days) 80 10 70 8 60 50 6 40 4 30 20 2 10 0 0 (b) Average Days of Hospitalization by Age Group 90 (c) Lifetime Medical Expenses (Estimates in Fiscal 2009) (Age) (Age) Source: Patient Survey (2011), Ministry of Health, Labour and Welfare (ten thousand yen) 350 300 250 200 150 100 50 0 104 Lifetime Medical Expenses Y23.00 million 57 41 34 36 46 54 59 67 82 Under 70 : 50% 70 or over : 50% 103 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 100-131 165 204 256 286 266 200 107 40 Source: Ministry of Health, Labour and Welfare 9 (Age) 22
Demographic Change / Ageing Long-Term Care Expenses (a) Period of Unhealthy Condition = Average Life Expectancy at Birth Healthy Life Expectancy Male Female Year Average period of a life WITHOUT physical limitations Average period of a life WITH physical limitations Average life expectancy Average period of a life WITHOUT physical limitations Average period of a life WITH physical limitations Average life expectancy 2010 70.4 9.2 79.6 73.6 12.8 86.4 (b) Certification Rate of Needed Long-Term Care in 2011 By Age Group Source: Ministry of Health, Labour and Welfare (Years) (ten thousand) 900 800 700 600 500 400 300 200 100 0 Population Number of People Certified Certification Rate 786 718 614 74.5 449 49.1 263 28.4 13.6 145 128 129 108 2.9 6 84 23 43 65-69 70-74 75-79 80-84 85-89 90- Source: Survey of Long-Term Care Benefit Expenditures, Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications (Age) (%) 100 90 80 70 60 50 40 30 20 10 0 23
Demographic Change / Ageing Average Life Expectancy - longer after-retirement years 95 90 85 80 75 70 65 60 Male Female 87.65 88.68 89.55 86.39 84.6 81.9 78.76 80.93 74.66 79.64 77.72 75.92 70.19 73.35 69.31 65.32 90.29 90.93 81.95 82.82 83.55 84.19 Estimated 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 Source: Ministry of Health, Labour and Welfare 24
Demographic Change / Ageing Consumer sentiment on insurance coverage < The percentage of those who feel dissatisfied with life security> Nursing care coverage 75% Death coverage Old-age security Medical security 57% 51% 71% 0 20 40 60 80 100 Source: Japan Institute of Life Insurance: consumer survey % 25
in capacity building 26
in capacity building Raising awareness Insurance education : highlights insurance education as its priority advocates for more insurance education develops materials for insurance education Gaining trust in the industry Promotion of better consumer experience : identified challenges that need to be addressed in order to achieve better consumer experience share good practices to facilitate further improvement 27
in capacity building Raising awareness Life Insurance Participation Rate (%) 100 95 90 85 80 93 88.6 89.6 86 83.1 75 70 65 60 55 71.4 60.5 66.3 50 1997 2003 2009 2015 20s All generations Source: Japan Institute of Life Insurance: consumer survey 28
in capacity building Raising awareness - Insurance Education made recommendations for Greater Opportunity for Insurance Education at Schools in its report on enhancement of insurance education Summery of the recommendations When the social security system is mentioned in the class, it should be ensured that the importance of self-help efforts and the benefit of the function of insurance is also communicated More practically, they should be learnt in both contexts of: the study of domestic science that focuses on personal life, and the study of social science (civics) that focuses on social life In implementing the above policy, teaching materials or lecturers provided by life insurance sector and other sectors should be recognized and used as appropriate 29
in capacity building Promotion of better consumer experience has been promoting better consumer experience with special focus on the elderly customers Identified challenges that could lead to bad consumer experience; Discontinuation of service processing In some cases, it is practically impossible to verify the intention of the policyholder or beneficiary, or to make contact with either of them. Intermittent service processing Even when service processing is successfully initiated, policyholders or beneficiaries might not have capacity to facilitate prompt service processing Increased pressure on service processing The number of various payments and procedures will increase substantially in a super-aged society (claims for benefits, policies reaching maturity, various conservation procedures). 30
in capacity building Voluntary Guidelines developed guidelines which specifically highlights the elderly The new guidelines were developed based on the recognition of key challenges in servicing the elderly Guidelines for Life Insurance Services for the Elderly (2014) The guidelines recognize three phases of the life cycle of life insurance contracts Phase I: Policy Acquisition Phase II: Policy Servicing Policy Life Cycle Phase III: Claims Servicing The guidelines try to identify key factors that should be considered when serving the elderly customers in order to improve consumer outcomes 31
Thank you 32