Japanese P&Cs face fierce price war risk

E-commerce giant Rakuten and other players may "threaten" the country's insurance market.

When Moody’s gave Japan’s property and casualty (P&C) insurance industry a stable outlook in 2018, it came with a warning: if price competition erodes underwriting margins, it could lead to a negative outlook. The rating agency considers the entry of e-commerce giant Rakuten and other new players with advanced technologies a “threat” to the current profitable auto insurance market, where three major groups account for 87% of the domestic P&C insurance market in terms of net premiums written.

The fresh entrant Rakuten could leverage on new technologies such as telematics to develop pay-how-youdrive (PHYD) products targeting its 95 million registered members in an attempt to grab some market share from incumbents. Such a possibility could push large insurers to take preemptive action to protect their market share and trigger a price war.

“Although we do not expect significant market disruption in the next 12 to 18 months, a potential risk is that one of the large insurers will introduce PHYD products to the mass market before new entrants take a meaningful market share,” said Moody’s. “If this happens, the other large insurers would likely follow, stoking fierce price competition.”

A Rakuten spokesperson said that whilst the company sees a great opportunity in the P&C business in Japan, which led the firm to acquire Asahi Fire & Marine Insurance for $419m from Nomura Holdings and pet insurer MottoGyutto SSI from CAS Capital Fund No. 6, it is not keen on initiating a battle based on price alone.

"Whilst this time is a bit early for us to make a statement nor forecast, we believe that we can compete in the business with a great advantage, not in a price-cutting war, utilising our e-commerce expertise and a huge user base,” the Rakuten spokesperson said.