U.S., Japan Near End to Insurance Dispute

The United States and Japan basically settled a long-festering insurance dispute Saturday in a deal that will open the $400-billion Japanese market to much greater participation by foreign companies, Finance Minister Hiroshi Mitsuzuka said.

Mitsuzuka made no formal announcement of the insurance agreement but said it had been clinched “in principle.” Some details of the pact remained to be worked out today, the deadline imposed by both sides for completion of talks. U.S. officials declined to confirm the deal, but it seemed clear that they too expect a final accord today.

According to Japanese media reports, major deregulating steps--including giving companies more freedom to decide premium rates--will be implemented for both life and nonlife insurance by the end of 1998.

The agreement is expected to open markets such as auto insurance to U.S.-style premium structures that allow drivers in low-risk categories to buy insurance more cheaply. It will, however, sharply boost rates for drivers in their late teens and early 20s and for those who have frequent accidents.

In the Japanese insurance industry as a whole, deregulation is expected to push down average rates by increasing competition. Standard auto and fire insurance premiums, for example, are now decided by an industry council, with firms required to stay within 10% of those rates. All this will end.

Such changes should greatly increase opportunities for U.S. firms in Japan, where foreign companies hold less than 5% of the total insurance business. They also fit into Prime Minister Ryutaro Hashimoto’s recently announced five-year “Big Bang” program of financial-sector reforms, which are aimed at helping Tokyo compete more effectively with New York and London as a key center for financial services.

Japan is the world’s second-largest insurance market after the United States.

One segment of Japan’s insurance business in which foreign firms have a strong presence is the so-called third sector of niche accident and illness markets. Only a limited number of foreign and small Japanese firms is allowed to do business in the sector.

A key issue in the Washington-Tokyo dispute was a Japanese plan to open the niche sector to large Japanese firms before carrying out broad deregulation of Japan’s primary insurance markets.

The United States charged that Japan’s plan violated a 1994 insurance pact. Under terms of the deal expected to be finalized today, the niche sector--with its strong foreign presence--will not be subject to full liberalization until 2 1/2 years after the primary sectors are freed up, Japanese media reported.

The full liberalization program is due to take effect by 2001, Mitsuzuka said.

Earlier Saturday, Mitsuzuka met with acting U.S. Trade Representative Charlene Barshefsky, who stopped in Tokyo on her way back to Washington from a weeklong World Trade Organization ministerial conference in Singapore that ended Friday.

Barshefsky told a news conference at the U.S. Embassy on Saturday afternoon that the Japanese side had made “potentially quite significant” proposals. She then headed out to Tokyo’s Narita airport, nearly two hours from downtown.

Mitsuzuka said basic agreement on the deal was achieved in a telephone call with Barshefsky while she was at the airport. She then departed on a flight for Washington, leaving her negotiator to finish the work.

Japanese insurance firms immediately expressed their displeasure with the deal. Analysts expect deregulation to drive some of the smaller and weaker Japanese insurance companies out of business.

“The United States has made one unfair request after another, totally ignoring consumers’ interests,” Takeo Inoguchi, president of Mitsui Marine & Fire Insurance Co., said in a written statement. “These negotiations have been absurd, and we resent the outcome.”

Mitsuzuka, however, said he expects the pact to ultimately benefit Japanese consumers.