"Cracking the Japanese code": Insurtechs seek outsized rewards in underpenetrated Japanese markets

On November 16th, FinCity.Tokyo (東京国際金融機構) co-hosted a seminar about the trends and opportunities for Insurtech firms in Tokyo, in partnership with Oliver Wyman. We are tremendously grateful to all the expert speakers who shared their insights across an afternoon of presentations, panels, and fireside chats at Asia Square Tower in Singapore.

In the first session, Yash Sekioka , Partner, Insurance at Oliver Wyman, described the size of the Insurtech opportunity in Japan. Although Japan boasts the fourth largest insurance market in the world, with $306bn in gross written premiums in 2022, it is placed at only 22nd in the world for the amount of funds raised by Insurtechs, he explained.

“Compared with other banking-related fintech sectors, Insurtech is still underpenetrated,” said Mr Sekioka. “In the Insurtech space there is a lot of whitespace, which means this is a growth opportunity,” he added.

The subsequent panel discussion entitled ‘How can you enter into the Japanese Insurtech Market?’ aimed to address the challenges and opportunities in the Japanese market, drawing on the experience of speakers Hugh Terry , CEO and Founder of TDI; Kazy Hata , CEO of justInCaseTechnologies; Stephan Tan , Group Chief Strategy Officer and CEO Insurance Solutions at bolttech; and moderated by Max Ang , Insurance Technology Research Advisor, APAC at Celent.

The air of opportunity in Japan’s insurance industry was exemplified by Mr Hata, with his tongue-in-cheek advice to the audience: “Do not enter the Japanese market - I do not want to increase the competition! It is too attractive for you to enter!”

Despite the panelists’ generally positive assessment of the Japanese insurance market, they also noted the challenges of doing business in the country. Japan is often regarded as a unique and difficult market, due to factors including digitalisation lags, complex regulations, language barriers, and high market concentration.

Mr Terry, whose company has started providing its English-based education services on digital insurance to Japanese customers, said that the need for “very professional translation of content into Japanese” has been a “big barrier to entry”.

“In Japan, if you make spelling errors, this is seen as a poor quality product,” said Mr Terry. He said that “getting it right” is an undertaking that requires significant investments of time and money, and noted that his firm is looking into using AI to support this process.

Hurdles such as these make finding local insurance partners, as well as working with other non-financial sector bodies such as FinCity.Tokyo, crucial to success in the country.

“It is a necessary condition to have a partnership with a Japanese company, but it is definitely not a sufficient condition,” said Mr Hata. He explained that it is important to make sure that a partnership has gained traction throughout an entire company.

“It takes longer to crack the Japanese code, and to find the right people to partner with,” agreed Mr Tan. “However, once you make a partnership happen, it feels like a very trusted, long-standing partnership that you’re building over time,” he said, noting his firm’s recent partnership with insurance firm Tokio Marine Holdings.

Next, a fireside chat between FinCity.Tokyo ’s Ambassador Chang Li and Stephen Barnham , CIO and CDO of Dai-ichi Life Holdings, which has been operating in the Japanese life insurance market for 120 years, discussed the opportunities for building partnerships between Insurtechs and existing insurance players.

In her earlier presentation, Ms Li, who is also VP for Insurtech/Fintech at Plug and Play Japan, noted that the number of life insurance policies in force has risen over the past five years, but customers’ preferences are shifting towards easier-to-understand and cheaper products. Opportunity also lies in disrupting the predominance of the in-person sales channel, said Ms Li, since the Japanese market lacks strong players selling policies over the internet.

Mr Barnham echoed these findings: “Large segments of our customer base are shrinking, preferences are changing from the high value products that we’re used to, where we have significant margins, to simpler products with much thinner margins,” he said.

For Dai-ichi Life, investments in Insurtech firms, such as its recent partnership with UK-based wellbeing startup YuLife, are one way of adapting to these changes and “seeking out” the growth segments in Japan’s mature market. It first rolled out YuLife’s product within Dai-ichi Life itself, and then on a small scale to three Japanese customers.

“This is a learning opportunity for us,” said Mr Barnham, adding that he is “not trying to guess what customers will want”. If failure is defined as not immediately launching “a perfect product that earned a ton of money”, then according to Mr Barnham, “of course, you’re always going to see failure”. On the other hand, he explained that success can mean: “‘We’ve learned a lot from this, and now we’ll pivot to something else.’”

From the Insurtech firms’ perspective, it is important to be patient, said Barnham. For example, the process of the YuLife partnership involved one of the company’s founders coming to Japan for a month to better-understand Dai-ichi’s business practices.

“I liken the Japanese market to pushing a snowball up a hill. Pushing that snowball can be very tough, as the snowball may melt or even fall apart on the way, but once you get it to the top - the point of realisation or the point of adoption - once you reach that tipping point, it rolls down and the rewards are outsized,” said Barnham.

Many more topics and were covered over the course of the afternoon at our 'Insurtech Imperative: Tokyo' seminar and networking event in Singapore. We would also like to thank Oliver Wyman's Head of Insurance, Asia Pacific and Vice Chairman, Singapore, Tek Yew Chia , and Partner of Insurance Allwyn Barreto , for their support.

FinCity.Tokyo works to help attract Fintechs and Insurtechs to Tokyo, and support them with market entry. If you would like to learn more about our activities and initiatives, please get in touch with us or visit our website www.fincity.tokyo .