Concurrent Operation of Life and Non-life Businesses
The new law still prohibits insurers from conducting any other business than insurance or from operating life and non-life insurance business directly and concurrently.
Enhanced Regulatory Transparency
The fair trade principle of "transparency" holds that:
1} laws and regulations should be readily available in writing;
2) regulatory decisions should be transparent and consistent with these laws and regulations; and
3) enforcement is subject to due process. Another dimension of transparency holds that information on insurance companies and insurance products should fully and accurately reflect reality. This has been a subject of difficulty for Japan in the past.
Insurance
Distribution Direct response marketing is now permitted by the Ministry of Finance. In automobile insurance, for example, insurers are allowed to offer their products through mass media. Brokerage operations are now permitted subject to some constraints.
Conclusions
Allowing international insurers into markets that were relatively closed in the past certainly promotes competition. In this respect, Japan's liberalization would seem to make for a most challenging future competitive environment for established firms. Japanese financial reforms are testament enough to the application of deregulation in Japan.
Additionally, the movement to permit creation of holding companies will allow greater market flexibility, especially for financial services firms including insurance companies.
With the new Insurance Business Law, with the 1996 agreement between the U.S. and Japan, and with the Big Bang reform proposals foreign insurers should have reason to be optimistic about the Japanese insurance market. Insurance deregulation and liberalization alone, however, will not solve all problems. For one thing, the insurance liberalization process is but a part of much larger economic adjustment and liberalization underway in the key financial sectors.
Unlike some previous movements that have been reform more in name than in substance, this latest version seems 'more substantive; for the economic alternative is not promising. Foreign insurers that wait until Japan completely opens its market may find themselves at a competitive disadvantage vis-a-via early entrants.
The importance of the Japanese culture and the emphasis on relationships and trust argue for patience and for not holding expectations for great initial success.
Deregulation carries some risks, however. With form, price, and other deregulation, Japanese insurers will witness unprecedented competitive pressure.
Some may be tempted to engage in riskier practices to sustain profitability or maintain market share. Also, with increasing competition, some insurers may be tempted to engage in practices that restrict competition, such as market sharing, collusive pricing, or other anti-competitive activities.
Finally, as agents and insurers enter this more competitive era, some may be tempted to exaggerate or omit certain important consumer information in their efforts to win business.
The new law still prohibits insurers from conducting any other business than insurance or from operating life and non-life insurance business directly and concurrently.
Enhanced Regulatory Transparency
The fair trade principle of "transparency" holds that:
1} laws and regulations should be readily available in writing;
2) regulatory decisions should be transparent and consistent with these laws and regulations; and
3) enforcement is subject to due process. Another dimension of transparency holds that information on insurance companies and insurance products should fully and accurately reflect reality. This has been a subject of difficulty for Japan in the past.
Insurance
Distribution Direct response marketing is now permitted by the Ministry of Finance. In automobile insurance, for example, insurers are allowed to offer their products through mass media. Brokerage operations are now permitted subject to some constraints.
Conclusions
Allowing international insurers into markets that were relatively closed in the past certainly promotes competition. In this respect, Japan's liberalization would seem to make for a most challenging future competitive environment for established firms. Japanese financial reforms are testament enough to the application of deregulation in Japan.
Additionally, the movement to permit creation of holding companies will allow greater market flexibility, especially for financial services firms including insurance companies.
With the new Insurance Business Law, with the 1996 agreement between the U.S. and Japan, and with the Big Bang reform proposals foreign insurers should have reason to be optimistic about the Japanese insurance market. Insurance deregulation and liberalization alone, however, will not solve all problems. For one thing, the insurance liberalization process is but a part of much larger economic adjustment and liberalization underway in the key financial sectors.
Unlike some previous movements that have been reform more in name than in substance, this latest version seems 'more substantive; for the economic alternative is not promising. Foreign insurers that wait until Japan completely opens its market may find themselves at a competitive disadvantage vis-a-via early entrants.
The importance of the Japanese culture and the emphasis on relationships and trust argue for patience and for not holding expectations for great initial success.
Deregulation carries some risks, however. With form, price, and other deregulation, Japanese insurers will witness unprecedented competitive pressure.
Some may be tempted to engage in riskier practices to sustain profitability or maintain market share. Also, with increasing competition, some insurers may be tempted to engage in practices that restrict competition, such as market sharing, collusive pricing, or other anti-competitive activities.
Finally, as agents and insurers enter this more competitive era, some may be tempted to exaggerate or omit certain important consumer information in their efforts to win business.