Insurance is easily imagined as a stable and delightfully boring industry but it is hardly so, certainly for property & casualty insurers who stand exposed to extreme events, natural or man-made, threatening them constantly with the threat of losses. Surely life insurance would be a calmer business. However, that industry too is still exposed to profound changes in competition, markets, and regulation. In the 20th century, Japanese life insurers experienced upheavals brought on by depressions, war, market swings, and deregulation. Nonetheless, the industry remains not only massive but comprised mostly of local firms, the product of entrepreneurship and state policies that encouraged tremendous growth in Japanese insurance.
Modern insurance in Japan took off in the late 19th century. Widely understood to be the formation of the first insurance firm in the country, Tokio Marine was founded in 1879. Just two years later, Meiji Life Insurance Limited Company was founded by Taizo Abe, arguably the father of the Japanese life insurance industry. At the same time, what would later become Yasuda Life was being organized by Zenjiro Yasuda, a tax-collector turned banker who also happened to be the great grandfather of Yoko Ono. Meiji Life and Yasuda Life were the first life insurance firms in Japan and, well over a century later, these companies merged to form Meiji Yasuda Life, one of Japan’s largest insurers today.
Many early life insurance firms were set up as mutual companies owned by their policyholders, a structure that would remain common in Japan and elsewhere for over a century. One of the earliest mutual life insurers was Dai-ichi Mutual Life Insurance Company, founded in 1902 by Tsuneta Yano, another pioneer in Japanese insurance. Yano believed the mutual structure would be able to return ample profits while upholding an ideal customer-oriented business model. The state can also be counted among the insurance entrepreneurs; in 1916, the Japanese government created the Postal Life Insurance Service, or ‘Kampo’, to provide life insurance to the lower and middle classes across the country. The below advertisement for Postal Life Insurance explains to customers how insurance works.
Early Japanese insurance firms borrowed from Western systems of insurance in terms of product design and pricing. Some early insurance entrepreneurs consulted with experts on insurance from abroad and mortality tables from Britain were used to price life insurance in Japan until Nippon Life created their own tables after starting business in 1889. To spread their risk, Japanese insurers, particularly non-life insurers, accessed overseas reinsurance markets. Reinsurance was a booming business in Europe in the second half of the 19th century.
The 20th century introduced challenges to these early Japanese insurance firms. Life insurers were battered during the Great Depression of the early 1930s and the Second World War further damaged them. The war had multiple effects, many of them unsurprising. First, Japanese insurers were forced to abandon overseas markets during the war. Further, the war had a direct effect on their finances, not just because of claims arising from war-related deaths but also because of falling yields on their investments. Life insurers were required to finance government deficits at low borrowing costs.
High inflation also dented the value of the companies’ assets and property & casualty insurers were cut off from reinsurance markets abroad which had previously allowed them to off-load risk at a competitive cost. Then, when the war ended, Japanese insurers had to compete once more with European or American firms. This all combined to encourage many insurers, including life insurers, to merge during or shortly after the war.
The condition of Japan’s insurance industry improved markedly after the war, especially for life insurers. Popular interest in life insurance rose in the 1950s, translating into more customers and helping create a new generation of mutual insurance companies. To sell policies to interested and willing customers, insurers developed large captive salesforces. Since demand for labor in Japan’s booming post-war economy was so great, firms turned to women to fill their growing need for sales representatives who would leverage their connections to sell insurance products door-to-door.
Virtually all life insurers grew as the 20th century went on; indeed, most grew very rapidly. Policies in force at Dai-ichi Life, for example, grew from ¥10 trillion in 1970 to ¥100 trillion in 1983 and Dai-ichi was also only the second biggest insurer. The industry leader, Nippon Life, was about 50% larger but the growth lifted all the major companies. Like Dai-ichi, the other life insurance firms regularly multiplied their policy volume by 10 times during each decade after the war, at least until the early 1980s. In all, total life insurance policies in force grew from just ¥365 billion in 1948 to over ¥1,200 trillion forty years later. Many insurers were also once again expanding abroad.
The post-war surge in life insurance sales occurred despite tight government regulation. In Japan, premiums were fixed by the Finance Ministry and were higher than what the market would have produced. The government typically delayed or rejected price cuts by larger insurers looking to gain market share on the grounds of promoting financial stability. The state was interested in helping smaller insurers, with less market power, recover after the war and remain in business. The belief was that keeping small insurers afloat would benefit policyholders of those and other firms. Despite this indirect aid to small companies, the market continued to steadily consolidate, with the market share of the seven larger life insurers rising from 66% in 1948 to 78% in 1968.
The 20th century still had one more challenge in store for Japan’s insurers. The country saw a stock market and real estate bubble in the 1980s that burst in 1990. This event, which triggered Japan’s ‘Lost Decade’, damaged insurers who promised high implied returns on policies during the boom years but soon had to live in a world of sharply lower interest rates and returns. This meant they could no longer rely on investment returns as a tailwind for their business. Pricing had to be adjusted higher on new policies, a reversal of a trend that had been underway for decades, as regulated premium rates were ratcheted lower over time.
The 1990s also brought years of insurance deregulation after Japan joined the World Trade Organization and entered into various commitments to liberalize markets with the United States. Among the changes was a lifting of a ban on banks and other firms selling insurance in 1995 and rule changes that encouraged more foreign entrants to enter the Japanese market. In 1998, the system of fixed insurance premiums was loosened, ending a significant support to local life insurers.
After 1980, growth in policies slowed, partly because insurers now had to concern themselves with defending their profitability rather than growing policy volumes at any cost. The latter had been the focus of life insurers until then. The idea was that with fixed premiums, there was no ability to innovate on product pricing so firms’ focus was on reducing expenses by capturing economies of scale, namely by writing as many policies as possible. Despite slower growth in the 1980s and 1990s, total life insurance policies in force in Japan rose to almost ¥2,100 trillion in 1994.
However, the industry was ailing. The end of the bubble years and deregulation put great strain on life insurers and several failed. Life insurer bankruptcies are rare but in Japan, Nissan Life failed in 1997 and Toho Life in 1998. Then, 2000 saw the bankruptcies of three other mega-insurers, Chiyoda Life, Tokyo Life, and Kyoei Life. Some of these were acquired by foreign firms, like AIG and Prudential out of America, looking to expand their footprint in Japan. Conditions stabilized in the 2000s and the surviving insurers modernized their sales channels and looked abroad for growth, as the Japanese market saturated and population began to shrink.
Though several insurers were formed in the late-19th and early-20th centuries, in its first few decades, the Japanese life insurance market remained small and slow growing. When it began to expand quickly after the Second World War, or the ‘Pacific War’ as the Pacific Theater is known in Japan, it was almost unbelievable growth. Several companies multiplied their policy volumes by 10 times or more, decade after decade, until the 1980s when slower growth resumed and the industry soon began to face some of its most severe challenges since the war. The second half of the 20th century was anything but business as usual, anything but boring, for Japan’s life insurers.
More from the Tontine Coffee-House
For more from the history of life insurance, get to know one of the earliest life insurance companies in the world, Britain’s ‘Amicable Society’. Also read about one of the unlikeliest companies to find its way into the insurance business, the York Buildings Company.
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2. The Dai-ichi Life Insurance Company, Limited. “History of the Dai-Ichi Life Group.” The Dai-Ichi Life Insurance Company, Limited Annual Rerport 2014, pp. 10–12.
3. Jiang, YingYing. “Life Insurance Distribution Systems in Japanese Market.” Oriental Life Insurance Cultural Development Center.
4. Yoneyama, Takau. “Life Insurance in Post-War Japan: Comptetion Under Government Regulation.” Insurance in Industrial Societies: Economic Role, Agents, and Market from 18th Century to Today, Aug. 1998, pp. 143–157.
5. Yoneyama, Takau. “History of Life Insurance Business in Japan: Features on Industrial Organization.” OLIS 50th Anniversary Life Insurance Symposium. 25 Oct. 2017, Tokyo.