SOMPO is Creating Value Connections with Society

Japan is currently facing a demographic challenge characterized by a declining birth rate and a rapidly aging population. This change is severely affecting Japan's workforce, making recruitment more competitive and increasing the proportion of elderly citizens, which in turn is contributing to health care and pension costs. While Japan is the world’s first super-aged society, many other countries, such as South Korea, Greece, Germany, and Italy, are all set to follow this trend. What are some of the lessons we can learn from Japan as the world’s first super-aged society?

Demographics in Japan is not a new topic; the base level considered to sustain a population is 2.07, and Japan has been well below that number since 1974. Sompo Japan Insurance, the core company of Sompo Group, focusing on the P&C insurance business, was founded in 1887, 20 years after the Meiji restoration happened. At the end of the Edo period, less than 40 million people lived in Japan, but over the past 130 years, the population has jumped to around 130 million. After WWII, the population evolved to have access to better medicine, food, and sanitation, leading to a better quality of life. The increased longevity of people is something that should be celebrated. Globally speaking, especially in advanced countries, fewer children are being born every year. Personally speaking, I think this does not pertain to the culture of the locality; instead, it is the evolution of human beings through a more materialistic world, resulting in people having fewer children. My grandmother had more than ten siblings, my mother had four children, I had three children, and I presume the generation of my children will have fewer children. I don’t see this situation as a crisis; rather, it is just a progression of society. I understand that this rapid decline is at a rate never before seen in human history.

All these changes come at a time when Sompo can reflect and understand the changes in society. Sompo has grown together with society for well over 100 years now, so we have seen the values and mentality of society change. Additionally, the social and economic systems that people interact with have drastically changed over those 100 years. I’m looking to stay vigilant but also to change the mindset of society. If you deem value as coming from the production of materialistic objects, then obviously, the elderly are not contributing, so it is important for me to change this misconception.

Traditionally speaking, Eastern cultures show respect to the elderly, and it has been an important aspect to maintain that respect for those predecessors who paved the way for us. In the past, we were able to look at the number of children in the country as the future of the labor force, but now, with the population decline, we can no longer do so. In order to compensate for this lack of labor force, the acquisition of high technology has been prevalent. For a sustainable society, it is important to integrate humans with technology. Wherever there is a shortage, technology can step in to support human labor. A technological revolution is important, but at the same time, a paradigm shift is necessary for people’s mindsets to change.

People are now saying that the Japanese economy and financial services industry are at a crossroads. The Bank of Japan (BOJ) recently announced a reversal of the negative interest rate policy that was in place around 2016 with a goal to curb inflation and change the tides of the weakening JPY against the USD since the JPY is continuing to head towards historic lows. Let's talk more about economic factors for your business. We know that the market is oversaturated with insurance firms, and there is a pressing need to go overseas to compensate for a dwindling population. Obviously, you have your own policies in place whereby macro factors do not dictate the winds of change for your business, but to what extent are these macroeconomic factors affecting decision-making in your business operations?

Of course, it is important within business operations to analyze the macro and external factors, therefore attempting to foresee the future and drive the business accordingly. You mentioned the BOJ’s monetary and financial policies; however, the normalization of this interest rate rise has taken much longer than in other countries. There are signs that this normalization is taking place, especially in terms of the production costs for commodities being shifted to the customers. With these kinds of changes, it is evident that Japanese society is experimenting with a path towards normalization.

As an insurance company, we are aware of the declining number of people here in Japan. In our business operations, we are allocating our management resources to more growing areas and trying to focus more on the long-term vision rather than the short-term.

Outside of Sompo Holding’s headquarters

We were looking at your 2023 financial results, and we saw that you’ve increased your dividends for the 10th consecutive year, a policy whereby you put 50% of consolidated profits directly to your shareholders. Your company is listed on the Prime Market, which was readjusted in 2022, and consolidated to make the criteria for those that can enter much more stricter. Part of that criteria is to have a constructive dialog with international institutional investors. Could you comment on how you are able to continue that dialog and what kind of policies you have put in place to ensure your stakeholders outside of Japan know about your group?

We have a global-based company called SOMPO international for global operations. As a listed company, it is important to be constantly aware of the global competition. We see our European peers or competitors having much higher dividend ratios as well as buyback ratios. Within our mid-term plan, there is an emphasis on paying close attention to those European peers, but it is also quite important for us to continuously invest in fields that show high growth. Basically, we are always fine-tuning and balancing, then explaining our adjustments to our domestic and overseas shareholders.

Could you expand into those fields of high growth that you are focusing on?

We have a short-term, mid-term, and long-term vision. In the short term, which covers around 2-3 years, inflation levels in the US are predicted to reach higher while staying high for longer. This means that having a high interest rate will mean higher returns, so continuously investing in overseas projects will be good for us.

In terms of our mid- and long-term vision, population growth is most prevalent in Asia, specifically India. Continuously investing in these areas will continue to be important for our future potential.     

We see the investment in well-being in Japan as having huge growth potential, especially now that humans have longer average lifespans. With that increased life expectancy, people now look to make their lives healthier. As an insurance company, we look to work closely with our clients to achieve health and maintain that health through the reduction of medical costs and the provision of services in lieu of payment of insurance claims. We want to create a platform to promote a healthier society by making extensive investments in the field. Having said that, there are cases where nursing care is required. It used to be the family taking care of the elderly, but with the change in lifestyles of people, this is rarely possible. Therefore, it is important for us to fortify our nursing care business and provide adequate services with high efficiency. The common importance that we are stressing is the utilization of digital technologies in all our business operations. This includes our insurance and nursing care businesses both overseas and domestically. The fundamental commonality between them is that there is a decline in demographics. Therefore, it is important to augment manpower with technologies, enabling us to provide specific services that will benefit people’s quality of life.

Sompo’s nursing care business

As you mentioned, there is a shortage of nursing staff, and it’s expected to rise to over 690,000 by 2040 here in Japan alone. There will be a need for new technologies, such as robotics, to compensate for this shortage. Still, another idea is that of care being done at home by family members, with employers helping to facilitate this. As a large insurance company, how are you upskilling or empowering employers to allow employees to care from home?

The shortage of caregivers you mentioned is actually a little optimistic since the number you mentioned is based on the demography projections. Looking at the last two years with the inflation and increase in wages, caregivers are nowadays moving out of the industry into more hospitality-focused careers such as in hotels or hospitals since the wages are higher in those areas. It is important for our firm to tackle the adjustment of demand in nursing care as well as provide higher numbers of carers.

In regards to family care or remote care, the family members are not specialists, so there is a limit to what they can do. We are advocating new work styles; however, working from home does not mitigate the supply gap for nursing care.

You alluded to a new revenue stream in which you are integrating health and wellness offerings, which are different from traditional-based policies. Could you describe how those policies work and how you’re helping to provide a more complete insurance solution for your clients?

We have announced a mid-term plan, and the theme is “Connect with customers and deliver connected services.” We also use a slogan that incorporates the word Insurehealth, which is a combination of the words Insurance and Health. The purpose of this policy is to provide policyholders with the maintenance of their health together with the company in order for all to become healthy. Within the policy, we are incorporating some triggering points to encourage people to change their habits and lead a healthier lifestyle. One example might be to encourage smokers to quit smoking. By following a healthier lifestyle, policyholders can reduce their premiums and benefit from greater interest rates. Also, we can provide regular doctor checkups as well as consultation sessions. Our group companies can look to leverage the data we have gathered and provide better services. As Sompo Holdings and SOMPO Group, we want to provide integrated services that contribute better to the overall health of global citizens, which, further down the line, would contribute to society in many ways. We envision a scenario where we have a contracted fitness club that will provide our policyholders with better rates as well as advertise Sompo policies to non-policyholders. Obviously, maintaining a healthy lifestyle is vital, but since life is never certain, having a comprehensive insurance policy like ours is quite important. 

Personally speaking, I believe that the idea of aging in society should be cherished. Many other people are very concerned about the situation, however. We want to mitigate the concerns that people have about their health, as well as the idea of receiving care. Through our various activities, we believe we can help change people’s mindset towards the aging society, making it a more positive one.

We saw your recent financial results. The third quarter bottom line was affected by external factors like COVID-19 and natural disasters both domestically and overseas. For your top line, however, you had record profits of around JPY 280 billion, backed by JPY 445 billion in net premiums. Could you comment on the contributing factors to such an increase in premiums during the last financial year?

Both domestically and overseas, the Sompo Group has a diverse range of businesses, but our biggest contributor in the short term has been our overseas business. This does not mean, however that our overseas business will continue to grow. In fact, it will continue to go through cycles up and down.

What were the contributing factors to the increase in overseas profits?

If we look at the data, there is sort of a difference between 2016 data and post-2016 data. Before 2016, we were more of a domestic company, but in 2016, we acquired Endurance, which led us to become something more international. Acquiring Endurance was the right decision, and at the time, Sompo Group had higher credit, which helped Endurance gain more drive. We allocated Sompo’s capital to Endurance, and then COVID-19 happened. Insurance companies that focused on return on equity (ROE) were very vulnerable to external factors so we stepped in and were able to acquire more underwriters as well as more lucrative approaches. Around the US and Europe, the rate has hardened before then rising. Our income has exponentially grown while also allowing us to reduce our loss rate. At the same time, we were able to increase our assets under management (AUM), which, when combined with the increased interest rates, meant that we were able to achieve a higher return, which in turn led to our rapid growth overseas.

For insurance companies, working with banks, retailers, and companies from other sectors can help diversify their client portfolio. In the case of your business, we know that you’ve partnered with technology companies like Salesforce as well as the KB Financial Group on an education-based project for nursing care. Looking towards the future, what type of new partnerships will you be looking to expand upon to help you with your local operations?

Technological companies, banking sectors, and embedded insurance companies are core targets for us.

AI health forecasting is a very big thing for the healthcare industry. Still, for service providers like yourself, the use of AI chatbots could be very interesting for answering calls and queries very quickly. Of course, the human element is something that we must not forget either. Could you comment on the use of AI chatbots and how they help you increase efficiency in your business? Where do you draw the line when it comes to AI versus human interaction?

We want to leverage all possible potential technologies. In the year that I was born, there were 1.8 million people were born in Japan, but that has now been reduced to 720,000. This means that the productivity of people now must be three times more than my generation, and not using AI technology to assist is almost suicidal. At the same time, however, human beings are acting as a hindrance to technological advancement. This is because humans love to keep the status quo and aren’t very adaptable to change. I think it means that we must create a company culture where we can enjoy technology and integrate it into our daily operations.

Although some businesses can be effectively conducted by AI technologies, others require human support and consultation. It is important to have a human-centric society and use technology to support the human elements.

There is some truth to the fears that advancements in technology could lead to infringements of privacy. Sensors, monitors, phones, and even the penetration of fake news all contribute to this, so it is my belief that humans must be smart in implementing technology while also leveraging its positive aspects.

Sompo has a presence in 28 countries around the world, and your firm seeks to create a truly global platform for your business. Can you elaborate more on your international business and where you see the most growth potential in the short term?

It is important to analyze market opportunities and see if they are short-term or long-term businesses before allocating capital accordingly. As we become a more global company, we cannot persist only in Japanese culture and values. In the short term, our focus will be on Europe and the US, but in the long term, it will be on Asia and the Pacific area.

What message would you like to convey to the world on behalf of Sompo Holdings?

Sompo Group was born and raised in Japan, and while we will always remember our roots, we are now looking to expand internationally by providing safe and sound insurance not only to Japanese people but also to global citizens.

For more information, visit their website at: https://www.sompo-hd.com/