U.S. Insurers Start Making Noise In Japan

Maurice Greenberg clearly recalls his conversation last winter with Shoichiro Toyoda, chairman of Toyota Motor Corp. With American International Group Inc. selling insurance in Japan for the past 46 years, why, the AIG chairman asked, couldn't he peddle auto policies through Toyota's domestic dealer network as Japanese insurance companies do? Toyoda arranged some meetings between Toyota officials and AIG. But the effort came to naught. "They finally told us their current insurers wouldn't understand," Greenberg says. A spokesman for Toyota says that its dealers decide which insurers to use.

For decades, U. S. and European underwriters have accepted such explanations. Not that they had much choice. Amid severe government controls and tight keiretsu ties that have kept most of the business in the hands of a few firms, foreigners have captured less than 3% of Japan's $390 billion-a-year insurance market. But with the Finance Ministry now studying deregulation of the insurance industry, foreigners are going on the offensive. Says Greenberg: "The time for action has arrived." The clamor in Tokyo is causing ears to prick up in Washington, where the Clinton Administration is preparing a broad push for greater foreign access to Japan's $1.5 trillion service sector.

Greenberg joined James D. Robinson III of American Express Co. at a U. S.-Japan Business Council meeting in Tokyo Feb. 14-16 to complain that the country's financial markets still are largely off limits. And no market remains as closed as insurance. U. S. Trade Representative Mickey Kantor recently added it to an official list of grievances against Tokyo. The industry wants Washington to start raising the insurance issue in all bilateral economic talks with Japan.

A look at the numbers shows how restricted the market is. In the fiscal year ended last March, Japanese property and casualty insurance premiums totaled $76 billion, while those for life insurance came to $313 billion. That makes Japan the world's largest life-insurance market and second-largest property-casualty market. Yet foreign insurers have only 3% of Japan's property-casualty business and 1.9% of its life premiums. Says one senior Clinton Administration official: "There are large U. S. insurance companies with successful operations throughout the world who can't get in."

Foreign insurers blame the keiretsu system of cross-shareholdings and other cozy corporate ties for many of their woes. AIG contends that 98% of the casualty insurance bought by Mitsubishi Group companies, for example, is underwritten by keiretsu member Tokio Marine & Fire Insurance Co. And much of the auto insurance sold through Toyota dealers is written by two companies in which the carmaker is a major shareholder. "We're probably the largest industrial insurer in the world," says Greenberg. "But we've never been able to penetrate that sector here."

BEING DEMANDING. Overregulation also helps keep new competitors at bay. The Finance Ministry controls rates and sets specifications for policies that are standard across the industry. That means newcomers can't use price cuts or innovative product design to woo customers.

What riles the foreigners even more is the Finance Ministry's response to their pleas for deregulation. Instead of targeting the life and property-casualty sectors, the ministry seems set on initially deregulating the "third area," which falls somewhere in between. That area is largely ignored by the big domestic underwriters, but AIG, American Family Life, and a few others have earned tidy sums selling accident, sickness, nursing-care, and hospitalization coverage to consumers. Amounting to only 12% of the market, this sector accounts for 45% of the foreigners' Japanese business.

Japanese insurers say the foreigners' complaints are sour grapes. Says Hitoshi Yoshida, special aide to Mitsui Marine Chairman Takeru Ishikawa: "Greenberg-san brags about AIG's efficiency--its limited number of people and slim organization. Their service to Japanese industry isn't sufficient." Americans have heard this line before. But in Greenberg the Japanese are encountering a challenger with more moxie than many other U. S. CEOs. "We're going to hold their feet to the fire and demand change," he says. If President Clinton goes to bat for Greenberg and his colleagues, maybe Japan's big insurers will start looking for coverage themselves.

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