The population problem driving one insurer’s US expansion

Sompo Holdings will be keen to keep the momentum going after an overseas profit hike, with Japan’s top three P&C insurer squaring up to an ageing population problem at home.

Sompo International reported a Q3 underwriting income bump up to $518 million, with adjusted profit up at $860 million. The results come as parent company, Tokyo-headquartered Sompo Holdings, has targeted aggressive global expansion.

One glaring reason that Sompo needs its international business to perform and grow – as highlighted by Sompo COO Mikio Okumura in a 2023 report – is Japan’s population demographic squeeze.

Japan’s population problem

Japan’s declining birth rate and shrinking population has proved a huge point of concern for government and businesses in the country.

If deaths continue to ramp at a greater rate than births, as projected, then its population is expected to shrink a further 17% by 2050 and 31% by 2070.

The consequences could be dire.

10 countries with the lowest birth rates

The 10 countries with the least births per 1,000 persons are:

_{Source: CIA World Factbook, date of information 2023}

By 2050, the ratio of working-age people to older individuals is expected to be just 1.4, down from four in 2000. Not only might a smaller population have less need for products and services, but the age shift is also expected to pile pressure on a government looking to balance lower tax income levels with greater demand for healthcare and wellness support.

Some businesses in Japan are already feeling the demographic shift strain

It may take some years for ageing demographic and population shrinkage pressure to feed through into property & casualty insurance businesses, but others are already feeling the strain.

Almost every business is dealing with this trend, Leonard Schoppa, University of Virginia department of politics professor, told Insurance Business.

“The ones that have had to deal with it first are those aimed at children and college-aged people (like colleges),” Schoppa said. “They have already seen their number of customers fall to half what they used to be.”

In the 2023 report, Okumura noted that Sompo has sought to expand into the Japanese nursing care market. The business now holds the number one position in terms of rooms for nursing care as it looks to get ahead of population and ageing dynamics.

Sompo’s international efforts are likely fit into a “wider trend” of businesses looking overseas as a form of ballast against the population slide, according to Kim Gould Ashizawa, senior advisor, Japan Center for International Exchange (JCIE) USA.

Why Japan is projected to see a birth rate slide

Numerous factors are compounding the problem that businesses and government are facing in Japan.

Like the US, the country experienced a post-Second World War baby boom. This was followed by a prolonged drop in birth rates.

High costs of housing, financial insecurity, and workplace culture (wherein long hours and after-hours entertaining are emphasized) have all been pegged as reasons for the fall in births.

Women, too, are increasingly working after childbirth with labor rates exceeding those of the US.

“Not surprisingly then, surveys have shown that women are less likely to want more than one child if they find that their spouse is not contributing in terms of childrearing and housecleaning duties,” Ashizawa said.

Japan is implementing measures including tax credits and an immigration rethink, but it will take a “major shift” to substantially change the trajectory, Ashizawa set out.

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