The Japan insurance market - one of the largest in the world - is about to be deregulated resulting in some of the most challenging opportunities in recent times for both Japanese and foreign insurers.

The highly regulated insurance system in Japan has remained largely unchanged for several decades. But dramatic developments in world insurance markets, not least in the US and EU, have brought the issue of Japan's global competitiveness to the fore. Target date for deregulation is currently Spring 1996.

All aspects of Japanese insurance are being considered for deregulation. This includes dismantling the tariff system, liberalising investments and assets and permitting freedom for brokers - all of which should encourage greater innovation and lead to more foreign participation in the longer term. In return, the US and EU can expect to see a greater Japanese presence.

Japanese deregulation will also involve relaxation of the long standing separation between life and non-life insurance. Perhaps under pressure from foreign interests, the country has questioned whether this separation is still appropriate, especially with the creation elsewhere of financial groups involving banks, insurers and building societies. While the introduction of composite insurers is unlikely, insurers may be permitted to run separate life and non-life operations through a subsidiary.

The deregulation proposals will be subject to public hearings in Tokyo, giving foreign insurers the opportunity to make representations. Lloyd's in particular has been raising its profile in Japan recently and the deregulation process is likely to involve new insurance laws enabling Lloyd's to write direct business there.

All UK insurers should monitor developments in Japan closely the next year to ensure they are best placed to exploit the new opportunities which will inevitably arise.

Jeremy Wood and Marjorie Holmes

Jeremy Wood and Marjorie Holmes are both insurance partners at international insurance law firm Davies Arnold Cooper.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances from Jeremy Wood or Marjorie Holmes (Tel. 071 936 2222).
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