The study assessed Japanese and foreign insurance executives’ perspectives on regulatory reforms, market competition, the privatization of Japan Post, and their companies’ business performance. Respondents said that ongoing regulatory reforms such as bancassurance have helped bring a greater variety of products (81 percent) and service improvement initiatives (70 percent) to the country’s insurance marketplace.
While nearly all (94 percent) of the respondents said that regulatory reforms have given rise to a stronger, more competitive insurance industry in Japan, only two out of five (42 percent) domestic insurers said that their own companies had benefited from those changes.
“Our research found that virtually all insurers operating in Japan believe that regulatory reforms have made the industry far more competitive and dynamic,” said Nobuhiko Watanabe, a senior executive in Accenture’s Insurance practice and co-author of the study. “But the legacy of a regulated market still hangs heavily over Japanese insurers and new market forces are seriously challenging their product, service and customer strategies.”
Changes Threaten Competitive Advantages of Domestic Insurers
According to the study, Japanese insurers derive their competitive advantages primarily from established brands, deep distribution channels, and loyal customers:
- More than three-quarters (76 percent) of respondents said they believe brand was a major source of competitive advantage among Japanese insurers.
- Three-quarters (75 percent) of respondents see Japanese insurers’ sales distribution channels as a key source of competitive advantage.
- Sixty-five percent of respondents said they believe that customer loyalty is a primary source of competitive advantage for Japanese insurers.
But the study also found that each of those sources of advantage is under some degree of threat from the dramatic changes occurring in the industry, including evolving consumer profiles, foreign competition and bancassurance.
For example respondents reported the following changes in Japanese consumer behavior over the past eight to nine years:
- 62 percent agreed consumers were more willing to compare policies and look for value;
- 43 percent agreed consumers were more price-conscious; and
- 35 percent thought consumers were more demanding of efficient service.
“Historically, Japanese consumers have been loyal to large, well-known brands,” said Watanabe. “But as banks and multinational competitors bring more tailored products to the market and rapidly establish online, price-competitive distribution channels, this loyalty may come under challenge and weaken the traditional advantages held by domestic insurers.”
The emergence of Japanese banks as distribution channels for insurance products represents a compelling, new venue for price-conscious consumers and a considerable challenge to domestic insurers, according to the study. Chief among the concerns expressed by domestic insurers is the potential loss of their direct customer relationships, as their products are increasingly distributed through banks.
The study also found that Japanese insurers see product innovation and business processes – which support evolving customer demands and efficient service – as key competitive advantages of their foreign competitors. Ninety-two percent of domestic insurers surveyed said the business processes that foreign insurers use to support functions like finance, human resources, and sales management are a critical competitive advantage, and 75 percent of domestic insurers surveyed said product innovation is a key competitive advantage of foreign insurers today.
“In a competitive marketplace, businesses owe the lion’s share of their success to strong customer relationships,” said Watanabe. “We believe that the mounting competition among domestic insurers, foreign insurers, and banks for superior brands, better business processes, and greater customer focus will bring not only better products and services to the market, but also greater protections to Japanese consumers and better market performance for shareholders.”
Insurers Seen Struggling to Achieve High Performance
As part of the study, respondents were also asked to rate their own companies against Accenture’s high-performance business model, which evaluates company performance based upon the distinctiveness and persistence of business strategy; strength of leadership, culture and workforce; value achieved through mergers, acquisitions and alliances; ability to manage and excel through boom and bust cycles; and ability to understand and optimize financial performance.
According to the study, Japanese insurance companies met Accenture’s global standards for high performance just 20 percent of the time, and foreign insurance companies operating in Japan met those standards 39 percent of the time.
“Given the convergence of forces currently affecting the industry, achieving high performance in the Japanese insurance marketplace is a major challenge,” said Pierre Louis Seguin, a senior executive in Accenture’s Insurance practice and Watanabe’s co-author in the study. “In order to thrive and survive, both domestic and foreign insurers must inspire loyalty in Japanese consumers and assure the highest operational efficiency to their customers, shareholders and employees.”
For Japanese insurers, Seguin and Watanabe advise, that means honing their capabilities for product innovation and customer service and adopting more efficient processes for their operations, including sales force training, customer and sales technologies, procurement, and claims. They must also build their organizational capabilities to manage change internally.
Foreign insurers must build their brands in Japan and enhance distribution to reach more Japanese consumers more quickly. In addition, they must build cross-cultural management expertise to retain and attract talent, boost marketing and sales effectiveness, and optimize distribution channels to counter the strength of domestic insurers.
