Japan Insurance Information
CIA link to demographic/economic data on Japan
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General Japan Insurance Information
- Compulsory Insurance:
1. Workers’ Compensation;
2. Third Party Automobile Liability;
3. Nuclear Liability;
4. Health Insurance.
- Non-Admitted Insurance:
Prohibited unless permission granted by the Financial Services Agency for coverage not available in the market. (Note: The insurance industry has been under the control of the Financial Services Agency since June 1998.)
- Policy Wordings & Rates / Tariffs Controlled:
Some wordings and rates remain controlled except for Ocean Marine Cargo. Rates are controlled for Auto, Fire and Personal Accident. The market is liberalizing so local advice suggested.
- Policy Language:
Japanese or English.
- Types of Insurance Restricted to Government Institutions:
Workers’ Compensation and Third Party Automobile Liability.
- Policy Currency:
yen (JPY). U.S. $ insurance is available.
- Currency Restrictions / Exchange Controls:
No restrictions.
- Policy Period:
Annual is normal but terms up to 35 years are available on private housing. Longer term policies will be written with the proviso that the full premium be paid at inception.
- Cancellation Provisions:
30 day written notice usually required though the Insured can cancel at any time.
- Premium Tax, etc. paid by Insured:
A Stamp Duty of Y200 (US$2) is levied on all policies.
There is a 0.2% Fire Brigade charge on Fire premiums; and a Road Safety Fund charge of 01.% on Motor premiums paid to Japanese insurers. There is a 5% consumption tax on brokerage.
- Insurance Companies:
All Insurers must be licensed.
- Brokers:
Japan is now a brokerage and an agency market. Fees are normal ways for broker remuneration.
Brokerage Commissions:
Fire - 5-28%;
Automobile - 7-22%;
Personal Accident - 7-25%;
Marine Cargo - 10%;
Other lines generally - 15%.
- Broker of Record Letters:
Not used for indigenous business. Foreign multinational companies use the letter which is understood and accepted by the market.
- Reinsurance:
With the exception of the Government’s involvement with Third Party Automobile Liability and Earthquake coverage for private dwellings, there are no restrictions.
- Local Natural Hazards:
Earthquake, Typhoon.
Property Insurance
- Fire:
Standard fire perils include - fire, lightning, explosion. An Extended Coverage Endorsement is available insuring against the perils of aircraft, storm / tempest, windstorm / hurricane, flood, burst water pipe, riot / civil commotion, malicious damage, volcanic eruption, vehicle impact are available in the market for an additional premium charge. Earthquake insurance is available on a restricted basis and Fire Following is available. Japanese companies for the most part do not purchase Earthquake Business Interruption. Indemnity for Earthquake is limited and therefore non-admitted coinsurance deficiency coverage should be purchased by the Foreign Parent company.
- All Risk:
Available for Builders Risk, Machinery Installation and related Contractors All Risk forms. The only recognized All Risk wording is Japan’s Inland Marine / Contents-type policy known as a ‘Dosan Sogo’. In practice, if the contents of a building are not “nailed down”, they can be insured under the Dosan Sogo and the related premium is 100% exportable for reinsurance purposes to a Captive Insurer or to a Global Program.
- Coinsurance:
Minimum 30%.
- Blanket Insurance:
Available.
- Business Interruption:
Local, UK Loss of Profits and U.S. Gross Earnings are available.
- Replacement Cost:
Available.
- Discount for fire protection equipment / systems:
Available to a maximum of 60%.
Boiler & Machinery / Machinery Breakdown/ Engineering
- Wordings:
All usual forms are available. Boiler Explosion is usually insured under the fire policy. Boilers, elevators / lifts, and turbines are subject to compulsory inspections.
General / Public Liability
- Available Wordings:
Local, Comprehensive General / Public Liability including Product Liability, Contingent Automobile Liability, etc. are available.
- Comments:
Policies are written on an occurrence basis and include the cost of defense. Note: Contractual Liability must be specifically endorsed.
Automobile / Motor
- Compulsory Limits:
Y30,000,000 per person.
- Comments:
Insured and any individual driving with Insured’s permission are covered. Passengers are also covered as they are deemed to be Third Parties. Automobile primary liability insurance is compulsory. Excess insurance is available but rates are controlled.
Workers’ Compensation
- Comments:
This compulsory coverage applies to all persons, types of businesses and is controlled by the Government. Extra-Territorial, Medical Expenses and Occupational Disease benefits are provided under various laws dating to 1947. Note: Employer’s Liability is not compulsory and coverage is available in the market.
Marine
- Available Wordings:
Cargo and Hull risks available on UK policy forms. Rates follow London market scale for Cargo, War and Strikes.
Crime
- Available Coverages:
Fidelity, burglary, money & securities coverages available on the usual UK, U.S. forms. Surety must employ local terms and conditions.
Library of Congress Country Studies
Updates & Additional Information:
Japan - Broker Information:
Insurance brokers have only been recognized under Japanese law since the Insurance Business Law came into effect on April 1, 1996. Partly as a result of their relative novelty, brokers are the least significant distribution channel in Japan, with a 2005 market share of just 0.23% (though this figure would rise considerably if it included the larger volume of business which brokers place through their parallel agency accounts).
Brokers are not allowed to handle client moneys, with the result that premiums and claims must be settled directly between policyholder and insurer. Brokers are also prohibited from placing business on behalf of agents, which prevents the emergence of a wholesale broking market.
Unlike agents, brokers are not allowed to bind cover on behalf of insurance companies. Brokers cannot start working for a client until the client has signed and returned a document entitled "Explanation of the Broker's Role". The cumulative effect of these restrictions is that it is practically impossible for brokers to handle private motor business.
The brokers' association is the Insurance Brokers' Association of Japan (IBAJ), which now incorporates the smaller Japan Insurance Brokers' Association. The IBAJ has 26 members.
At the time this report was being prepared there were 34 registered brokers, of which only six were foreign (Willis Japan Insurance Broker, Marsh Broker Japan Inc, Guy Carpenter & Co Inc, Aon Insurance Brokers Japan, Aon Risk Specialists and Mercer Human Resource Consulting).
Most brokers (including Marsh, Aon and Willis) have separate agency companies and place most of their business on an agency basis (since both clients and insurers are happy with agency relationships, there is little point in suffering the higher costs and administrative inconvenience of placing business as a broker). The Japanese brokers are mainly affiliated with banks and trading houses and were set up to augment the business of their parent companies' in-house agencies by building up an external client base. Kyoritsu Insurance Brokers of Japan specializes in representing foreign brokers and international broker networks.
The international brokers mainly survive off outwards reinsurance and multinational servicing.
Their attempts to break into the domestic market have been largely frustrated by the in-house agency system, which delivers an effective premium rebate of up to 20% to the parent company, and which favors the perpetuation of long-standing relationships with Japanese domestic insurers. Brokers get some fee-based work advising Japanese corporations on how to restructure their insurance programs, but the actual transaction is normally reserved for the in-house agent. It is only rarely that brokers progress from advisory to transactional work, in which case the in-house agent is restricted to handling the client's employee programme.
As a result of slow business acquisition, high deposit or professional indemnity requirements and low commission levels, an increasing number of domestic brokers have reverted to agency status: between 2002 and 2007, for example, the number of brokers fell from 55 to 34. Of the brokers that survive, Marsh is said to have acquired the highest profile with both multinational investors and risk-aware Japanese corporations. Aon has pursued a more diverse business development strategy involving affinity groups, small to medium-sized enterprise accounts sourced through its own agency force, and an internet joint venture with Yahoo Japan.