The life insurance industry in Japan is expected to contract by 1% in 2020, as compared to 2% growth registered in 2019, according to GlobalData, a leading data and analytics company.

GlobalData has revised Japan’s insurance forecast in the aftermath of the global Coronavirus (COVID-19) outbreak. As per the latest data, the Japanese life insurance market is forecasted to grow at a compound annual growth rate (CAGR) of 0.9% during 2019-2023.

Tapas Bhowmik, Insurance Analyst at GlobalData, comments: “The emergency imposed to counter the COVID-19 outbreak pushed the economy to recession. As per the government data, GDP contracted by 3.4% in Q1 2020, following a 6.4% decline in the last quarter of 2019. This is expected to adversely impact the growth in new business premiums and insurers could face lower investment returns with interest rates being decreased by the Central Bank.”

The country’s dependence on offline sales channel also adds to the pressure faced by the insurers. As per the latest data from Japan Life Insurance Institute, about 3% of the life insurance products are sold through the online channels, whereas sales representatives and agents together account for over 70% share.

Restrictions on movement and reduced face-to-face interactions are expected to impact life insurance uptake in the short-term. While insurers are undertaking measures to bridge this gap, it is expected to take considerable time to achieve a significant level of digital transformation.

The slowdown due to COVID-19 outbreak worsens an already weakened business environment. An aging population, low birth rate and low interest rates are some of the factors that constrain life insurers’ growth prospects in Japan. In addition, mortality table updates and premium rate cuts in 2019 further contributed to the pressure on profitability.

Bhowmik concludes: “As insurers brace for the looming slowdown, the next steps for recovery will involve a marked shift from the legacy offline-based business processes to technology-driven solutions.”