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[OECD roundtable] japan insurtech challenges


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Presentation slides used for OECD Tokyo conference, explaining how Japanese insurance community tacke insurtech and the big picture for future of insurtech

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[OECD roundtable] japan insurtech challenges

  1. 1. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 0‐ Technology Adoption in Japan’s Insurance Industry and Regulatory Challenges ©2018 Mori Hamada & Matsumoto all rights reserved April 2018 Masakazu Masujima ADBI-JFSA-OECD Roundtable on Insurance and Retirement Savings in Asia
  2. 2. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 1‐ Photo H4.8×W4.21cm tel. +81 3 5220 1812 Masakazu Masujima, Partner 1 Masakazu Masujima Partner admitted in Japan, 2001; New York, 2007 with Wilson Sonsini Goodrich & Rosati, P.C. (2006-2007) with the Financial Services Agency (May 2010- June 2012) Research Fellow for Nikkei CSIS Virtual Think Tank (2011-2013) Council member for Ministry of Economics, Trade and Industry (2013-present) Office: Tokyo Education: The University of Tokyo (LL.B., 2000) Columbia University School of Law (LL.M., 2006) Practice Areas: Financial Regulations, M&A and Private Equity Practice and Experience: • Advises insurers and other financial institutions on M&A and intra-group restructurings, including:  Acquisition of PCI Life by SBI Holdings  Acquisition of Endurance by SOMPO  Divestiture of Fuji Life by AIG  Group reorganization by Daiichi Life  Group reorganization by Aflac  Other acquisitions involving banks and insurers • Advises G-SIBs and G-SIIs on corporate governance and regulatory matters. • External counsel to International Monetary Fund (insurance resolution regime ). • Advises a number of private equity firms on fund formation (raising +JPY100BL)and asset management. • Chambers Asia, Best Lawyers in their Field (Insurance) (2015-2018): “As a former secondee at Japan's Financial Services Agency, Masakazu Masujima "knows how the regulator thinks," and as such, insurer clients "can really rely on his experience and knowledge of Japanese regulations." He is acclaimed as a "very responsive and accommodating" practitioner, who impresses in dealing with complex issues quickly.” MORI HAMADA & MATSUMOTO
  3. 3. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 2‐ Japan’s Journey for Fintech Fintech landscape in Japan 2011 2013 2014 Reward based crowdfunding launched Equity based crowdfunding study group Mt. Gox crypto hack Equity based crowdfunding law passes 2015 Great East Japan Earthquake Fintech buzzes Blockchain buzzes 2016 Crypto regulation passes 2017 Bank API regulation passes Insurtech buzzes 2018 US JOBS Act FATF guidance on crypto NY Bitlicense Act EU PSD II Coincheck crypto hack Connected industry strategy released  Over the years, Japan has carefully watched what are happening overseas and tried to keep pace with global regulatory trends  On a crypto space, Japan tries to take the lead in making a rule in the brief that cryptocurrency is the next big thing.  As world’s second largest in life insurance market and fifth largest in P&C insurance market, Japan need to keep up with business model changes for IoE era in insurance space Regulatory sandbox law Singapore regulatory sandbox
  4. 4. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 3‐ Narrative development persuading insurance industry to give its full attention to insurtech was the first challenge in 2016 - 2017 Japan’s challenges for insurtech ? ?? “What has happened in media/contents business in recent 20 years is the future of financial business because both of the media/contents business and the financial business share the base model as information industry under the internet architecture”
  5. 5. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 4‐ <Banking industry disruption map> Account Payment Lending Collection Asset Management Distribution Asset Management Collection Lending Payment Account Bank account as platform Marketing Marketing Marketing Marketing Payment Morgage Investme nt Informati on Insurance Consume r Loan Aggregati on Other contents unbundling rebundling Disruption usually takes “unbundling, then rebundling” path Japan’s challenges for insurtech “Learning from the banking industry disruption” was one of the successful approaches to make the insurance industry aware of a need for innovation
  6. 6. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 5‐ <Insurance case> rebundling Distribution Underwriting Claims handling Asset management Claims Underwriting Distribution Asset Management Distribution Distribution Underwriting Underwriting Claims Claims Asset Management Asset Management unbundling ? No difference between banking business and insurance business in terms of industry-wide regulation and full stack services model Japan’s challenges for insurtech
  7. 7. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 6‐ As Internet of Everything evolves, people will voluntarily share real-time data with insurers and let PDSs monitor their own behavior 24/7 Japan’s challenges for insurtech Underwriter Underwriter Underwriter Monitoring Monitoring Reinsurer as a platformer Monitoring Risk market
  8. 8. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 7‐ Future of insurance business model is based on layer architecture and more tech/data driven by making full use of sensors strewed everywhere Future of insurance business Front end Back end Monitoring Underwriting Distribution Compliance (fraud detection, reporting, risk management…) Claims handling Payment (premiums, benefits)  Disruption model  User driven data management  Reinsurer as global capital provider  Small insurer as local risk management provider  Distributer as user interface provider connecting insurer with commission On demand (real time) P2P Decentralized Aggregation (PDS) Regtech Robotic process automation Data analytics Money remittance  Business SaaS model  Analyzing business process big data for more efficient operations  Connecting data with regulator for efficient monitoring/supervision  Open risk capital market  Faster and smaller-sized payment services (arguably not by banks)
  9. 9. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 8‐ Change of regulations and conventional practices in a timely manner are the biggest concern to take the lead in insurtech space Regulatory agenda to encourage insurance innovation  Scope of business for Insurance group (insurance business definition)  Where exactly is the space that insurance regulation should cover?  What are the businesses an insurance group is permitted to engage in? Is limitation of business scope for insurance group really necessary?  Does a “provision of services rather than money in case of an accident” model really fit for insurance regulation package?  How, or whether or not, should we make risk pooling and risk personalization co-exist? How we should address people who cannot afford insurance protection?  Product development and supervision  Data driven parametric insurance  Dynamic pricing insurance  Experimental insurance product for data collection  Reform of supervisor’s review process in product development  Reform of industry wide closed insurance data sharing process using old-fashioned data collection and analytics methods  Enhanced (real-time and large volume) data sharing system to tackle fraud detection  User-first insurance distribution reform  Reform of channel-based distribution regulation that unequally protects specific business model  Reform of insurance broker regulation  Improve agency management system to promote multichannel sales approach that provides customers with a seamless risk management experience through offline and online.
  10. 10. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 9‐ Japan’s all industry sandbox legislation aims for collecting data that backs a need for regulatory reform Regulatory agenda to encourage insurance innovation Prime Minister (Develop “core principles” for sandbox system) Appointment of professionals in each field Validation Committee Private sector service providers Application of plan One stop check in office Responsible Ministers (Collaboration with minister responsible for applicant’s existing business and minister responsible for area of new business) Hearing Recommendation Request reporting Accreditation of plan  Not limited to financial industry due to boundary-blurring nature of innovation.  Controlling the social impact by limiting numbers of customers involved and the time period.  Validation committee members from private sector to put pressure on conservative responsible ministries and make the plan move forward.  Government officials may unload responsibility for unexpected outcome from the experiments  Responsible ministers are expected to appoint the senior management who is responsible for making the process move forward (through personnel rating system managed by the Cabinet)
  11. 11. Copyright © 2017 Mori Hamada & Matsumoto All rights reserved.‐ 10‐ Thank you ! Masakazu Masujima Partner, Mori Hamada & Matsumoto tel. 03.5220.1812 email.