U.S.-Japan Trade

Japan is the second largest insurance market in the world; in fiscal year 1995, Japanese firms received 96.4 percent of the $400 billion in annual risk insurance premiums. In October 1994, the United States and Japan signed an agreement to reduce barriers that impede the access of competitive foreign insurance companies to the Japanese market. GAO surveyed U.S. companies on the 1994 insurance agreement. Although U.S. insurance providers indicated that the Japanese government has implemented many of the key provisions of the 1994 agreement, these actions have not resulted in significant liberalization and have had no effect on their ability to compete in the Japanese insurance market. For example, most companies said that they remained unable to differentiate the types of coverage they could offer and the rates that they could charge. In addition, they said that the distribution systems in Japan impeded their ability to distribute their products.

GAO found that: (1) U.S. company responses to GAO's questionnaire and discussions with their representatives operating in the Japanese insurance market indicated that the Japanese government has implemented, to varying degrees, many of the transparency, deregulation, and competition provisions contained in the 1994 agreement; (2) however, most U.S. insurance providers reported that these actions did not result in significant liberalization and have had no effect on their ability to compete in the Japanese insurance market; (3) for example, most companies reported that their ability to compete in the major product categories of the primary sectors was limited because of: (a) their continued inability to differentiate the types of coverage they can offer and the rates they can charge; and (b) distribution systems in Japan that impede their ability to distribute their products; (4) as the United States and Japan continued to negotiate the implementation of the mutual entry provision, 9 of the 11 U.S. insurance companies reported that there would be a negative impact on their ability to compete in the third sector if subsidiaries of Japanese firms were allowed full access to sell products in that sector; (5) only one insurance company reported that allowing these subsidiaries full access to sell third sector products would have a very positive impact, and another insurance company reported no effect; (6) six of the eight U.S. insurance companies who participate in the insurance programs of Japanese public corporations reported that despite the terms of the agreement, fair, transparent, nondiscriminatory, and competitive criteria were not being used to allocate premium shares; (7) according to U.S. companies, only one of the five public corporations has disclosed its allocation formula; (8) since the signing of the 1994 agreement, foreign companies have not significantly increased their small share of this large market (over $1.2 billion in annual premiums); and (9) the foreign share of the insurance premiums generated from these five public corporations ranged from 0.02 percent to 1.3 percent in fiscal year 1995, according to Foreign Non-Life Insurance Association statistics.