Japan

Principal Legislation

• Health Insurance Law 1922
• National Health Insurance Law 1938
• Employees’ Pension Insurance Law 1944 (EPI)
• Medical Care Law 1948
• Law Concerning Non-Life Insurance Rating Organisations 1948
• Law on Insurance Solicitors (Intermediaries) 1948
• Law Concerning Foreign Insurers 1949
• Automobile Liability Security Law 1955
• National Pension Insurance Law 1959
• Law Concerning Earthquake Insurance 1966
• Insurance Business Law 1996
• Long-Term Care Insurance Law 1997
• Financial System Reform Law 1998
• Law on Sales of Financial Products 2000
• Consumer Contract Law 2001
• Defined Contribution Pension Law 2001
• Defined Benefit Corporate Pension Law 2001
• Pension Reform Law 2004
• Medical Care System Reform Law 2006
• Financial Instruments and Exchange Law 2006
• Insurance Law 2008.

Supervision

The insurance supervisory authority is the Financial Services Agency (FSA), a “super-regulator”, which is responsible for supervising the entire financial services sector under the authority of the Cabinet Office.

For non-life there are two principal insurance associations, the General Insurance Association of Japan and the Foreign Non-Life Insurance Association. All life companies are members of the Life Insurance Association of Japan. There is a pension association, the Pension Fund Association, and a health societies association called the National Federation of Health Insurance Societies (Kemporen).

Admitted / Non-admitted

Non-admitted insurance is not allowed in Japan because the law provides that insurance must be purchased from locally authorised insurers, with some exceptions. Insurance intermediaries are not allowed to conduct business in Japan without a licence. Licensed brokers are not allowed to place business with non-admitted carriers except for international marine and aviation.

The following insurances are exceptions to the general prohibition on non-admitted placements:

• international marine cargo (excluding coastal cargo and inland transit)
• hull and liabilities in respect of Japanese ships and aircraft engaged in international trade
• overseas travel insurance

Compulsory Classes

• Compulsory automobile liability (CALI).
• Liability for maritime oil pollution.
• Liability for nuclear risks.
• Workers’ accident compensation for employees in industry and commerce (state scheme).
• Residential buildings defects liability insurance (cash deposit or insurance policy).

State Involvement

The state-owned Japan Post Holdings (which incorporates Japan Post Insurance), Japan Post Service and Japan Post Network would be merged into a new holding company. The government is a shareholder and reinsurer of the Japan Earthquake Reinsurance Company. The life insurance organisation Japan Post Life is owned by the part-privatised public postal service Japan Post.

Tariff Classes

The only remaining tariff classes are compulsory automobile liability insurance (CALI) and household earthquake.

Premium Taxes and Charges

Insurance companies pay a JPY 200 stamp duty on each non-life policy they issue.

Policy Language

Policies may be issued in either Japanese or a foreign language, typically English.

26 domestic direct insurance companies operating under the terms of the Insurance Business Law, 17 foreign branches and nine insurance holding companies. There were also 41 co-operative insurance carriers operating under sector-specific laws. A total of 69 companies had registered as “small-amount short-term” insurers (SSI), a new business category which was originally created to encourage unregulated co-operatives to regularise their positions, but which may also be adopted by newly established niche insurers.

Japan has two domestic professional reinsurers, one of which, the Japan Earthquake Reinsurance Company, is partly owned by the government and only reinsures household earthquake risks. There are also two foreign reinsurance branches plus a number of foreign reinsurer liaison offices. Direct non-life insurers write large volumes of domestic reinsurance, though this is mainly represented by pooled classes such as compulsory automobile liability (CALI) and household earthquake. The top three insurance groups write increasing volumes of international inwards business, both as reinsurance of their overseas affiliates, and through specialist international reinsurance subsidiaries.

Despite the introduction of competing channels, agents remain the bedrock of insurance distribution in Japan. The number of insurance brokers has shrunk as brokers have discovered the difficulty of wresting transactional business from large corporations’ in-house agencies. The life market is dominated by insurer’s direct sales force.

Japan has an extremely high exposure to earthquake, volcanoes and tsunamis. The most frequent cause of property losses is windstorm, specifically typhoon, which mainly affects the household rather than the industrial account. All typhoons give rise to flood damage which is insured under the terms of the windstorm extension. Severe flooding can also be caused by tropical downpours or weather fronts associated with typhoons.