The GIAJ Chairman's Statement (Translation)
June 30, 2016
As the newly appointed Chairman of the GIAJ, I would like to express my opinions as follows:
I wish to express my deepest condolences to the victims of the 2016 Kumamoto Earthquake, and extend my sincerest sympathies to all who were affected.
Over two months have passed since the earthquake hit the Kumamoto region. While lifelines and supply chains have reportedly been recovered, with over 140,000 homes and many tourist attractions damaged, the region still bears deep scars. As a supplementary national budget designated for recovery and reconstruction of the affected areas has been approved, the move towards the reconstruction of livelihoods and recovery of the regional economy is expected to accelerate.
The general insurance industry has made a unified effort to ensure prompt payment of residential earthquake insurance claims. As of June 27th, we have settled 209,293 claims and made payments totaling 328.5 billion yen. Although we have settled most reported claims, we will continue with efforts to ensure proper payments up to the very last claim, including any that are yet to be reported.
2. The current environment
While the Japanese economy remains stagnant, it is expected to resume a moderately upward trend due to improvements in the employment rate and income levels.
However, the recent UK referendum to leave the EU has caused turmoil in the financial markets, and uncertainty of the economic outlook is greatly increasing. While we are concerned about the effect on the real economy going forward, and repercussions to Japan’s economy through currency appreciation and falling stock prices, the situation may change depending on the policy responses of the respective countries, so we would like to monitor the situation carefully.
All the more so in these times of heightened uncertainty, in order to part with deflation and attain sustainable economic growth, the most important priority is to remove people’s uncertainties about the future and stimulate demand and investment. Creating new markets and enhancing productivity by promoting innovation is also required. On June 2nd, the Cabinet decided a set of important policies, such as the ' Outline of the Basic Policy on Economic and Fiscal Management and Reform 2016' and the ' Japan Revitalization Strategy 2016'. We expect these policies, which will contribute to the growth of our country, to be implemented speedily and firmly, through positive actions of the private sector, a virtuous economic cycle will be definitely realized.
Our industry is determined to support the national economy by actively responding to natural disaster risks as well as new types of risks related to various innovations, and offering products and services that protect customers in times of misfortune.
3. Our overall policy
Our Seventh Mid-Term Business Plan spanning three years focuses on the following three pillars: 'Responding to new environmental changes', ' Preventing and reducing disasters and crimes', and 'Nurturing the environment for consumers’ usage of insurance'. This year is the second year of the Mid-Term Business Plan, and we will positively implement the three pillars through initiatives focusing on two viewpoints, namely the 'Wide dissemination of risk-related information' as well as 'Activities which contribute to increasing the soundness of general insurers and ensuring proper insurance payments'.
4. Specific initiatives
(1)Wide dissemination of risk-related information
Our Association plays a role in mitigating social losses in the event of accidents and disasters, and we fulfill this role by encouraging people to become properly aware of the various risks surrounding society and supporting them in making 'appropriate preparations' including the use of general insurance. In the year ahead, we will actively provide information especially related to natural disasters such as earthquakes and traffic accidents involving the elderly, and promote activities which contribute to disaster prevention and reduction, and road safety.
i. Promoting understanding of earthquake risks and residential earthquake insurance (hereafter ‘earthquake insurance’)
Following the Great East Japan Earthquake, the government revised damage estimates for events such as a Nankai Trough Earthquake and a Tokyo Inland Earthquake, which has made the risks of major earthquakes increasingly evident. The Kumamoto Earthquake reminded us yet again that a massive quake can hit 'anytime, anywhere' in Japan. With this in mind, we will actively provide information regarding the earthquake risks of our country, and stress the necessity of earthquake insurance as an effective self-help tool.
Earthquake insurance is a highly public scheme jointly administered by the government and general insurance companies, and will mark its 50th anniversary in June this year. When the scheme was first established, the maximum insurance limit for an insured structure was only 900,000 yen, and claims were only paid for 'total loss' cases. Numerous revisions followed, and under the substantially improved scheme currently in place, the maximum insurance limit is 50 million yen, with coverage expanded to include 'half loss' and 'partial loss' claims.
While the scheme has generally been well-accepted as a 'security of last resort' in earthquake-prone Japan, the household adoption rate remains at 28.8 % and the earthquake insurance participation rate is 59.3% (as of March 2015). Although the rates have been increasing yearly, we think that it is further necessary for the public to gain a deeper understanding of the fact that the risks still they may face are very real.
Accordingly, our Association will hold a forum on September 5th, to commemorate the 50th anniversary of the earthquake insurance scheme. While reflecting on the 50-year history of the scheme, we will review how to manage household earthquake risks, and take advantage of the opportunity, with general insurance companies and agents working together, to promote earthquake insurance.
ii. Prevention and reduction measures for natural disasters etc.
Due to its geographical profile, Japan is characteristically prone to various natural disasters. Last year alone, natural disasters such as Typhoons Goni and Etau, windstorms, and the bursting of river banks due to flooding, inflicted severe damage. Natural disaster risks are considered to become more intense and diverse due to the effects of climate change, and it is increasingly important for all sectors of society to prepare for and work together to respond to disasters.
Our Association will designate priority regions as in the previous year, and in cooperation with local municipalities, engage in activities to raise awareness of disaster prevention and the reduction of risks specific to each region.
We will also promote a practical educational safety program called 'Exploration for Disaster Prevention' where children explore their neighborhoods enjoyably by discovering facilities and equipment for disaster/crime prevention and traffic safety to attract interest and deepen understanding about them.
We will continue to support the strengthening of self-help and mutual help at the local level while contributing to increasing disaster prevention capabilities at the local level.
iii. Activities contributing to the prevention of traffic accidents involving the elderly
The ratio of traffic accidents involving the elderly where they are either victims or the perpetrators has been growing yearly. Notably, the majority of traffic accident casualties are elderly people aged 65 or above. We will consider more effective accident prevention measures by researching details and characteristics of such accidents, and will also promote awareness activities in collaboration with the police. Through these efforts, we hope to contribute to the mitigation of social losses.
iv. Activities to foster understanding of general insurance
In dispatching lecturers to various seminars and interaction with consumer related authorities and organizations, our Association is engaged in activities that assist the general public in gaining a better understanding of general insurance. This year we will aim to encourage more people to accurately grasp the risks surrounding their lives, and enable the effective use of general insurance as preparation for such risks through awareness and educational programs targeting various age groups.
(2) Activities that contribute to increasing the soundness of general insurers and ensuring proper insurance payments
While the general insurance business plays a highly public role in helping rebuild customers’ livelihoods and businesses through insurance payments in the event of misfortunes, general insurance companies are required to manage ever more sophisticated, diversified and complicated risks, and ensure proper insurance claim payments.
Our Association will promote measures that contribute to securing the financial soundness of our member companies, and to ensure prompt and proper insurance claim payments even after events such as large-scale natural disasters.
i. The development of earthquake insurance claims payment readiness
Major earthquakes such as a Nankai Trough Earthquake or a Tokyo Inland Earthquake are expected to cause damage several times greater than that of the Great East Japan Earthquake. To prepare for such events, our Association will address challenges such as the simplification of damage assessment procedures and more detailed damage classifications presented in the follow-up meetings of the Ministry of Finance's 'Residential Earthquake Insurance Scheme Project Team' in June 2015.
Additionally, we have drawn up an industry-wide Business Continuity Plan (BCP) to help our member companies swiftly prepare for prompt insurance payments and maintain key functions during disasters. To improve the contents of the BCP and make it more practical, this year we will undertake a review to identify any outlying issues through drills, etc.
ii. Response to international insurance supervision and regulations
With the aim of stabilizing the financial system and strengthening financial soundness and corporate governance of insurance companies, the International Association of Insurance Supervisors (IAIS) is discussing enhanced international supervision and regulations. Our Association will actively submit constructive opinions and take appropriate measures towards the IAIS and other organizations.
iii. Activities regarding cyber security
Cyber attacks are now regarded as posing critical risks not only to general insurance companies, but also to the stability of the overall financial system. Our Association will advance measures to enable mutual cooperation among insurers by developing an arrangement whereby general insurers immediately share information on security incidents, and engage in knowledge sharing through seminars and drills in collaboration with relevant authorities.
(3) Other issues
i. Activities to establish a new insurance soliciting system
The Insurance Business Act Amendment, which came into effect on May 29th, stipulates basic rules for solicitation processes and agents’ duty to develop operations, etc. with increased requirements for explanations and proposals from the viewpoint of consumers. Our Association has been responding to the Insurance Business Act Amendment by revising various guidelines, etc., and will continue to work to appropriately address the new solicitation rules along with general insurance companies and their agents.
Furthermore, to help general insurance solicitors acquire further knowledge and business skills, since 2012 we have been operating an accreditation program called the 'General Insurance College Course', together with the Independent Insurance Agents of Japan, Inc. About 10,000 certified solicitors are actively engaged in business as 'General Insurance Total Planners', the most prestigious qualification of our general insurance college course. We will continue to increase the number of such highly regarded, customer-oriented solicitors by promoting the general insurance college course.
ii. Enhancement of consumer consultations, complaints, and dispute settlement
Our 'General Insurance ADR Center' deals with general consumer consultations and provides support in solving disputes between customers and insurers from a neutral and fair standpoint. We will strengthen its functions in terms of both quality and quantity.
iii. Prevention of insurance fraud and fraudulent claims etc.
We will make progress on the projects to build a common database among general insurance companies in order to eliminate conduct which damages the soundness of the insurance system such as insurance fraud and fraudulent claims, etc.
iv. Infrastructure support to Asian regions and countries
With a view to offering technical assistance and promoting exchanges among the general insurance industries of East Asia, we have hosted the ISJ (Insurance School (Non-Life) of Japan) programs since 1972. We have also worked on offering knowledge regarding soft infrastructure such as insurance ratemaking systems together with interested organizations. We will promote our support activities, and continue to respond to the needs of Asian markets and regions in cooperation with the relevant authorities.
Our Association will mark its 100th anniversary in May 2017.
Keeping in step with the remarkable economic and social developments during the post-war era, the general insurance industry has strived to support the economy as an important component of the country's infrastructure. We have experienced various environmental changes such as market expansion from marine insurance to fire and automobile insurance, liberalization of the insurance market, and the frequent occurrence of large-scale natural disasters. Through these experiences, we have acquired an immense amount of knowledge.
While unprecedented changes may continue to occur within the economy, within society and in the natural environment, building on the experience of the past 100 years, we are determined to address risks which continuously change over time.
Insurance is 'a wonderful invention created by the wisdom of humanity'. Our member companies and agents stand alongside our customers, and together we will strive to meet the expectations of society by delivering products and services that will provide security in times of misfortune to as many people as possible.