Aging Population Drives Japans Life Insurance Premiums, According to a New Study on ASDReports

Wednesday 27 January 2016, Amsterdam

Japan’s rapidly aging population has created demand for both post-retirement and savings insurance products. According to a report by Timetric, in the next five years this demand is set to increase, supporting the strong performance of whole life, pension and term insurance products.

During the last five years, the life insurance segment was driven by demand for traditional products. The individual whole life category accounted for 80.3% of the segment’s direct written premium in 2014, with a value of JPY21.2 trillion (US$199.9 billion). The pension insurance category was the second-largest in the segment, with a direct written premium of JPY5.1 trillion (US$47.8 billion) in 2014. According to Timetric, Japan’s combination of low birth rates and increasing life expectancy will increase demand for post-retirement products in the next five years. Consequently, the direct written premium share of the pension insurance category is forecast to rise from 19.2% in 2014 to 21.2% in 2019.

In addition, life insurers are catering to Japan’s elderly population by offering innovative products. For example, from July 2014, Dai-ichi Life Insurance launched 10 types of single-premium savings insurance products, annuity insurance and whole life insurance, enabling the insured Japanese to plan for life after retirement.

Challenge with savings insurance

The outlook for savings insurance products remains a challenge for life insurers due to the low yield (0.61% as of 2014) from Japanese government bonds. This has prompted life insurers to modify products by eliminating or minimising interest rate-related guarantees and focusing on protection instead. Over the forecast period (2014 -2019), Timetric anticipates the segment’s gross written premiums to increase from JPY33.5 trillion (US$316.4 billion) in 2014 to JPY41.4 trillion (US$372.0 billion) at a CAGR of 4.3%.

Decline in premium rates

An aging population has a significant effect on life insurers in Japan. High competition in the industry is prompting life insurers to reduce premium rates and add new distribution channels. For example, in April 2014, Nippon life reduced premium rates associated with its core product combining mortality insurance with medical insurance. To acquire more customers in their twenties, the company began offering reductions of around 7% in premiums.