IT Spending Trends in the Japanese Insurance Industry: 2011

Celent published a new report “IT Spending Trends in the Japanese Insurance Industry: 2011” which is the updated version of IT Spending Trends in the Japanese Insurance Industry: 2010 (http://www.celent.com/reports/it-spending-trends-japanese-insurance-industry-2010). In March, Japan was rocked by one of the largest earthquakes on record. Despite the massive scale of the Great East Japan Earthquake, the insurance industry has weathered the disaster well. Celent forecasts that insurance IT investments will grow from USD 7.84 billion in the fiscal year ended March 2011 to reach USD 7.98 billion in the fiscal year ending March 2015. The March 11 earthquake will accelerate change in a number of areas, including prompting the industry to revisit business continuity planning (BCP) and reconsider the adoption of green IT. In terms of the latter, the disaster will spur companies that have been dragging their feet to study the introduction of technologies such as cloud computing and SaaS solutions.

Insurance and Japan

One might naturally assume that the tragic events in northeastern Japan would also be devastating the Japanese insurance industry. By the beginning of April some 320,000 P&C claims related to the disasters had already been filed with insurers. After the Kobe earthquake of 1995, when many home and business owners discovered their policies did not cover the damage, people got in the habit of buying earthquake / tsunami insurance. So fortunately more properties were insured on 3/11 than may have been otherwise. In conversations with Japanese carriers, however, Celent has found that insurers are remarkably sanguine about the likely effect on the industry here. Firms say they have adequate reserves set aside precisely to cover an event of this magnitude, which has long been predicted. As a result, Celent expects that major Japanese insurers will continue to invest in strategic initiatives to boost competitiveness and lower costs in this very crowded market. IT spending growth at Japanese insurers, which has been close to flat for years anyway due to the maturity of the market, will suffer a modest dip in the short term. Smaller insurers are likely to put off renewal projects for a while. Pressure to merge will increase at some firms, but again the industry has seen a spate of consolidation activity in recent years already. The recent events are likely to encourage Japanese insurers to accelerate their international expansion efforts, which are already underway. Carriers have been looking abroad for growth opportunities, especially to the Asia Pacific region but further afield in the Americas and Europe as well. In Tokyo, along with the concern, there is a new competitive spirit in the air. April is the start of Japan’s fiscal year and businesses look determined to find ways to grow even as the economy is forecast to contract. The insurance industry would be no exception. For example, the past year has seen the emergence of new internet and mobile based distribution models and products, approaches which seem almost tailor-made for the post-3/11 era. Technology suppliers will want to know that amplified interest in business continuity is leading insurers to think seriously about cloud computing. The blooming sakura and early spring sunshine might be distracting me from some of the harsher realities of 21st century Japan. But certainly a little optimism is not misplaced in what is after all one of the world’s major insurance markets.

It’s A Small World After All

It was in 1964 that Walt Disney first told us in song that “it’s a small world, after all.” As we apply the concept to insurance in 2010, it is clear that Walt was well ahead of his time. The opportunities and challenges for today’s insurers around the globe seem to transcend time zone and cultural differences. I recently spent a week in Tokyo, in part for the Celent Insurance Roundtable. (No, I did not go to Tokyo Disney.) To be successful, a trip like this has to include some very fresh sushi, and a flurry of fresh perspectives. Thankfully, I found both. In our roundtable discussion and in my conversations with Japanese clients I was struck by how similar Japanese insurer concerns are compared to those of North American insurers. Common themes included finding the right levers to drive company-level growth despite flat industry-level demand, concerns over outdated IT approaches, and the challenges associated with optimizing short- and long-term strategies simultaneously. Comparing Tokyo consumers to their counterparts in North American cities of similar size is also interesting. Looking around a Tokyo Starbucks, I saw that same curious mix of eccentric 20-somethings and 40-something professionals that I see in New York. Most were on laptops or smart phones, enjoying high speed connectivity to stay in touch with friends or to crank out emails from their virtual offices. The Japanese may still have more affection for their keitai (cell phones) than do North Americans, but the gap is clearly closing. Another symptom of our rapidly shrinking planet (where is Al Gore when you need him?) is that global competition is no longer limited to the manufacturing sector. Looking at the names on Tokyo buildings tells the story. IT services firms are aggressively building out their presence in new geos. Insurers are buying companies halfway around the world. Software vendors that got their start in one country are now reaching critical mass in others. While I typically preach focus for any firm that haven’t mastered its “home” domain, I think that expanding the vision to new countries is essential for successful firms that have high growth ambitions. Good ideas, powerful tools, and game-changing strategies are welcome visitors to just about any country. As a futurist and as an entrepreneur, Walt Disney dreamed big dreams. We may not be commuting to work by personal jet pack (yet), but otherwise Walt had it about right. It’s a small world, indeed.

Green Initiatives in the Japanese Insurance Industry: On the Starting Line

Interest in green initiatives is on the rise worldwide, and Japan is no exception. Even though the Japanese insurance industry is just at the starting line of green initiatives, Celent research has found that the industry is seriously considering this area. One of the reasons why they show a sincere attitude to green initiatives might be that the insurance companies accept that they “waste” a lot of paper throughout the policy process. The target of a 25% reduction in greenhouse gas emissions touted by the administration of Yukio Hatoyama and the general swell of interest in environmental issues make it a safe bet that more and more insurance companies will actively take part in green initiatives. In addition to the conventional activities such as tree-planting projects, which have been common among companies looking to contribute to society, green IT is gathering momentum and attention. The insurance industry, which uses massive quantities of paper, is expected to increasingly shift to electronic files. In conjunction with this, companies will no doubt have to tackle the topics of introducing applications for document and content management to shore up their systems. Although the initial costs to establish such systems raise the specter of a jump in IT costs over the short term, the decreased use of paper will ultimately translate into reduced costs over the long term.