Japan’s Small Insurance License
InsurTech startups looking to enter the insurance business in Japan are offered an attractive path with the small insurance license, or rather “small amount & short term insurance (SSI) provider” license as the regulation is known. The capital requirement is a mere JPY 10 million (USD 90,000), compared to the JPY 1 billion (USD 9 million) for the full insurance license. Japanese InsurTech startup justInCase, which has just raised JPY 1 billion in a Series A funding round, obtained such SSI license in June 2018.
A good example of insurance sold under the SSI license is one-day car insurance. This plan can be bought by people intending to briefly drive a car borrowed from a friend or relative. These policies have proven incredibly popular since the typical daily cost of “one coin”, i.e. JPY 500, is much cheaper than registering an additional driver on their parents policy, for example. Pet insurance also has been a hot seller.
In return for lighter capital requirements, SSI companies are subject to several restrictions for the policy term (a maximum of two years for property & casualty insurance, one year for life insurance), the policy amount (e.g., property damage up to JPY 10 million, death benefit up to JPY 3 million), and the total annual premium volume (JPY 5 billion). On the other hand, SSI licenses are obtained through a filing with the Regional Financial Bureau rather than the Financial Services Agency, which is seen as a less difficult process. The SSI license also permits property & casualty and life insurance composite products, which are strictly separated for the “big” license.
Market overview
As of September 30, 2019 (halfway through the Japanese financial year running from April 1, 2019 to March 31, 2020), there were 102 small amount & short term insurance providers in the market, an increase of 5 over one year before. 8.45 million policies were in force, up 8% on the prior year, with a premium volume of JPY 51.3 billion during the first six months, up 5%. That averages out to an approximate cost of JPY 1,000 per policy per month.
The 49 companies offering household insurance account for 85% of the policy volume, but only 67% of the total premium. Pet insurance, offered by 8 companies, punches above its weight with 5 percent of the contracts, but 13 percent of the premium income (although this is also the only category that decreased year-on-year). Life & health insurance offerings achieve parity with pet insurance, however, with 29 companies instead of 8.
Most Japanese insurers have also created SSI subsidiaries and are using them as incubators for new digital business models and cross-industry collaborations, for example with telecom companies. At this point, the business model assumes that customers gained through these new direct channels can at some point be transferred to traditional property & casualty and life policies, which are dominantly sold through agents in Japan.
History
In the early 2000s, many cooperatives (kyosai) started offering insurance beyond their direct membership and regional boundaries. Thus it became difficult to distinguish between insurers who underwrite insurance for the general public and unregulated kyosai which also underwrite insurance for a specified group of persons. A subcommittee of the Financial System Council therefore concluded in a report published in December 2004 that unregulated kyosai, conducting quasi-insurance business for a specified group of persons, should be regulated from the viewpoint of insurance policyholder protection.
In response to the report, the Cabinet submitted a bill to the Diet in March 2005, amending the Insurance Business Law in order to enlarge the scope of the policyholder protection rules provided by the Law to cover, in principle, kyosai which undertake quasi-insurance business for a specified group of persons.
Over a two year transition period, these kyosai either had to apply for an SSI license or cease their business.
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