Japanese insurers to face stagnant growth in the next five years

Sluggish sales of term life and savings products are slowing down the industry.

Japan’s life insurance industry is expected to grow at a compound annual growth rate (CAGR) of 2.6% from $274.9b in 2021 to $313.3b in 2026, in terms of direct written premiums (DWP), data and analytics firm GlobalData predicts.

However, the industry will see stagnant growth in the next five years due to sluggish sales of term life and savings products.

According to GlobalData, the Japanese life insurance industry registered 2.4% growth in 2021 after two consecutive years of decline in 2019 and 2020. Past 2021, however, the industry will only increase by a few percentage points, reaching only 3.1% by 2026.

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Ashish Raj, Insurance Analyst at GlobalData, said that the industry growth is expected to remain sluggish in 2022 and 2023 as the term and savings products are not sought-after life insurance products among the older population.

“A persistent low-interest rate environment since 2010 due to a stagnant economy has prompted insurers to reduce the sales of savings products offering guaranteed returns. Since the Bank of Japan is persisting with low-interest rates, a recovery in the sale of life products with guaranteed returns is expected to be minimal over the next few years,” Raj said.

Another challenge for life insurers is the reliance on agency or brokers’ distribution channels, which traditionally accounted for the majority share of life insurance sales. A less developed digital sales channel led to a decline in sales during the last couple of years, specifically after the disruption caused by the COVID-19 pandemic.

To avoid such disruptions in the future, the Japanese government established the Digital Agency in the second half of 2021. The agency will support life insurers in reducing their dependence on traditional sales channels and moving to digital distribution.

“However, insurers must continue to focus on implementing cost-effective digital distribution solutions and launching new products for growth,” Raj said.