Japan’s changing insurance industry can learn some lessons from the U.S. market

By Kazuyoshi Ono

While the U.S. has continuously held the largest share of the worldwide insurance market, the second-largest insurance market, Japan, also possesses massive assets. Both share aging populations. With the number of policies declining, there’s an ongoing shift from death benefits toward medical and wellness coverage as well as toward preventive health care and mental health.

Once known for its traditional but competitive edge, the old Japanese insurance model of selling mass quantities of insurance using a large sales force will struggle to survive in the next decade. It must gradually pivot over the medium to long term, and the U.S. serves as an important example to draw lessons from.

"A rapidly aging population is often presented as a challenge or even threat to society. However, much of the pensions, healthcare and labor supply pressures could be addressed and insurers can play a key part in making this possible,” according to a recent PWC report entitled Ageing and insurance: The opportunities of an older Europe. “Ageing will stimulate innovation and the supply of new services and smart insurers will be at the forefront of realizing the potential opportunities to provide healthy, secure and enjoyable retirements.”

Case in point: personal identification numbers similar to the U.S. Social Security number have not existed in Japan until recently. The My Number Card system was introduced in 2015, and as of Aug. 27, 2023, 94 million My Number Cards were issued by the Japan Agency for Local Authority Information Systems. The cards have already begun integrating with health insurance cards, with a plan to merge with national drivers’ licenses.

Meanwhile, the U.S. follows an individual from birth to death holding information such as driver’s licenses, tax returns and bank accounts all under one Social Security number. In that respect, it has allowed for improved public services through innovative processes such as streamlined claims, online policy management and 24/7 customer support.

Using the My Number Card platform, the Japanese government aims to provide consumers with access to valuable digital data, including medical checkup results, medication and pharmaceutical records, and surgical history. With user consent, it may also become possible for insurance companies to use this digital data cache to create and access more multi-pillar services and systems. Given the gamut of data provided by My Number, the Japanese insurance landscape finds itself on the cusp of many exciting innovations and opportunities.

The U.S. insurance industry uses data analytics, artificial intelligence and machine learning for risk assessment and claims management. With growing access to data through My Number and if data privacy is met, Japanese insurers may soon be able to invest in similar tools to help extract benefits from mass data. This could involve investing in advanced data analytics capabilities to improve customer experience, risk management and fraud detection. A greater degree of personalized targeting can lead to more precise underwriting decisions and better marketing strategies.

Japan’s insurance is primarily sold through in-person sales channels. As the nation’s population ages and shrinks, fewer salespeople and insurance agents will likely be in supply over the coming decades. Therefore, the industry should look at alternative distribution channels that the U.S. currently employs including online platforms, insurtech partnerships and direct-to-consumer models.

For example, Lemonade, a digital insurance startup, partnered with Allstate to benefit from each other’s strengths. Lemonade is well known for its AI-driven chatbot while Allstate has a wide customer base and strong underwriting capabilities. Through the partnership, Allstate incorporated Lemonade’s innovative capabilities such as faster claims processing, automated underwriting and improved customer interaction through AI-powered chatbots. This enabled Allstate to respond to evolving customer expectations.

In the next few years, Japan’s insurance market is expected to shrink further due to the declining birthrate and aging population. To move into the future and retain a competitive edge, insurance companies can look to the U.S. on how to bridge data silos and forge new partnerships by streamlining legacy systems to reduce costs and increase agility. By incorporating innovation and digitalization, additional challenges, trends and opportunities in both traditional insurance and digital health markets – potentially worth $1.1 trillion by 2032 – can be addressed to positively impact the future of the Japanese insurance industries.

Kazuyoshi Ono is senior consultant at Nomura Research Institute. He may be contacted at [email protected].