The postal reform problem
Like all EBC committees, the Insurance Committee has a long list of issues and recommendations. There are calls for harmonisation with global accounting standards and solvency margins and quicker product approval, to name just a few.
Yet in recent months, those issues have been largely overshadowed by a single one – postal reform. The attention isn’t surprising, given that issue’s massive repercussions for the private insurance industry. The bill in its present form could no less than wipe out a big chunk of the lower-end and middle sections of Japan’s private-sector banking and insurance market, according to committee chairman John Kakinuki.
“There are a lot of issues we’d like to deal with, but this is taking up a lot of our time,” says Kakinuki, a lawyer and executive officer at AXA Life Insurance.
He is not alone in his fear and loathing of the postal-reform measure. As an editorial in the Asahi Shimbun states, “The bill is riddled with problems that could threaten the health of the nation’s financial system.”
The bill, which this summer Prime Minister Naoto Kan vowed to pass “at an early date”, would double the caps on an individual’s life insurance coverage to ¥25m, giving Japan Post Insurance a clear competitive advantage over its private-sector counterparts.
The Insurance Committee has long been calling for a level playing field vis-à-vis the post office, not just for the sake of European insurance companies but for Japan’s private insurers as well. The bill, which scales back many of the privatisation proposals drawn up under the administration of Junichiro Koizumi, threatens not merely to tilt that playing field – but to flip it right over. [See “Post-Privatisation” in our August issue for more on this topic.]
As for the business of selling insurance policies, European and other foreign insurers generally consider Japan a mature market. That means “foreign companies are not looking at this as a growth market, so they’re not putting in a lot of investment,” Kakinuki says. “On the other hand, it’s a large enough market in a large enough economy, and people consider it important, which is why we are all here.”
Ironically, the set of socio-economic trends generally seen as spelling doom for the future economic health of Japan can be viewed as an outright boon for private insurers. The greying of Japanese society – and the strain thus put on the national pension and health insurance systems – together with the trend towards smaller households would be expected to generate demand from consumers seeking enhanced financial security in the face of a gloomy and uncertain future.
That would be good news for the industry were it not for one big countervailing factor – the 2008 global financial meltdown. So while opportunities to develop markets exist in Japan, many large foreign insurance companies are at the same time preoccupied with having to deal with the aftermath of the financial crisis.
As for the committee’s advocacy issues other than the postal bill, mixed results are reported.
A bright spot is the move by Japanese regulators towards a principles-based regime away from one based on rules. The difference between the two approaches has been described as being like the difference between soccer and American football: The former has few rules but the referee is given discretion in how they are interpreted, while the American sport is bound by a large number of very specific rules, which the referee is tasked with enforcing.
Insurance company officials say that in their industry, a principles approach puts the focus on risk management, and in the process promotes the creation of innovative products.
Kakinuki says he has witnessed the shift towards this approach in Japan first-hand, in the form of the regular three-month-long inspections of his company by the Financial Services Agency (FSA). The FSA isn’t nearly as intense as before, he notes.
“The FSA inspectors now look more for good risk management, rather than putting on their proverbial white gloves and wiping every surface they see,” he says. “They used to stay until 11 o’clock at night, and then give us a bunch of work we had to do by the time they came in the next morning.”
Now, the inspectors go home at the civilised hour of 6 pm, Kakinuki says.
Meanwhile, the committee reports “some progress” on the harmonisation of standards, and “no progress” with product approval, calling the process “overly lengthy.”
One of the features of the EBC Insurance Committee is close collaboration with its counterpart at the American Chamber of Commerce in Japan (ACCJ). The EBC committee meets once every three months. Every third meeting is held jointly with the ACCJ, with the government stakeholders on both sides in attendance.
Amid ongoing debate over the government’s plans to reform the post office, the activities of the Insurance Committee and its partners have become all the more crucial.