Motor insurance, one of the largest segments of the Japanese general insurance market, is expected to encounter stagnation over the next four years due to the coronavirus outbreak, according to a report by GlobalData.
The report revealed that motor insurance gross written premiums recorded a compound annual growth rate (CAGR) of 0.7% between 2014 and 2019. However, motor insurance’s share in the general insurance sector, is projected to decrease from 53.3% in 2019 to 52.4% in 2023.
The slump was mostly credited to the recent decline in insurance premium rates. In 2017, the General Insurance Rating Organisation of Japan (GIROJ) proposed rate cuts for compulsory motor third-party insurance. The organisation requested an 8% reduction in compulsory motor insurance premiums, referencing the decreasing number of claims, as rising adoption of automation and telematics reduced the rate of accidents.
Furthermore, the Financial Services Agency of Japan has scheduled more rate cuts by an average of 16.4% from April 2020. Even for motor hull business, insurers are offering discounts resulting in lower premiums, the report said.
Another major factor piling on the pressure for insurers is the sluggish business environment, which will be further worsened by COVID-19. New vehicle sales in Japan declined by 11% in 2019 to 344,875, down from 387,525 the previous year.
“The recent COVID-19 outbreak is expected to further impact new vehicle sales. This will further impact automobile insurance and we could see a decline in premium this year,” said Manish Vatsa, insurance analyst at GlobalData.
“To mitigate the slowdown, insurers are offering add-on benefits and strengthening their cross-selling platforms. They must also look to tap new opportunities like car-sharing or renting enterprises to expand their customer base and drive growth. Despite pressure on premium, motor insurance will continue to remain the leading business line within general insurance market in Japan.”