President, Meiji Yasuda Life Insurance Company
Born: 1939, in Japan.
Career: Meiji Life Insurance Company, 1994, managing director, 1994–1998, senior managing director; 1998–2004, president; Mitsubishi Tokyo Financial Group, 2001–, director; auditor with Japanese Institute for Overseas Investment; Meiji Yasuda Life Insurance Company, 2004–, president.
Address: Meiji Yasuda Life Insurance Company, 1-9-1 Nishi-Shinjuku, Shinjuku-ku Tokyo 169-92, Japan; http://www.meijiyasuda.co.jp/regular/english/.
■ If current trends continue, Japan will increasingly have an aging population. Insurers, already stressed by economic stagnation and deregulation, have reformed their practices to meet the business environment and prepare for the demands of this aging population. Key to the insurance-industry's reform was the leadership of Ryotaro Kaneko. As president of Meiji Life Insurance Company since 1998, Kaneko oversaw the merger of his company with Yasuda Mutual Life Insurance, a group-insurer specialist. The combination of Japan's fourth- and sixth-largest insurers created its third-largest insurer, with assets of ¥27.7 trillion and contracts worth ¥316 trillion. The merged company, Meiji Yasuda Life Insurance Company, became a rival of Nippon Life Insurance Company, Japan's second-largest firm. The merger proved to be Kaneko's greatest management challenge, as it exposed an accumulation of accounting mistakes and misconduct. Through consummate devotion to the interests of policyholders and the industry at large, Kaneko improved the financial standing of his company and the Japanese insurance industry as a whole.
In the 1850s after the U.S. Navy forced the Tokugawa shogunate to end Japan's cultural and economic isolation from the
world, European and American firms scurried to help construct a modern economy. They brought globalization, with its demand for open markets and liberal economic policy, to Japan. One of the first results of this market liberalization was a British insurance policy procedure covering storage at one of Japan's key ports. The first Japanese insurance firm, Meiji Life Insurance, was formed in 1881.
During the 1980s Japan experienced trillions of dollars in bad loans that led to the overvaluation of stocks and real estate. This overvaluation created a discrepancy between Japan's fundamental economic strength and investor confidence. This financial situation inflated Japan's economic power and thus exacerbated the envy of U.S. and European policy makers. When market reality exposed the overvaluation in 1991, prices collapsed and profits disappeared; Japan's economy entered recession, and resentment of Japan decreased. At this moment the United States forced Japan to undergo economic globalization anew. Using the threat of trade sanctions, in 1994 the Clinton administration pressured Prime Minister Hashimoto to adopt economic liberalization policies that were preferential to U.S. firms. The United States also obtained a new defense pact in which Japan would pay a share of U.S. defense costs in the area. Since the same Japanese finance ministers responsible for the bad loans of the 1980s made this agreement, many Japanese corporate heads and managers were upset. Leaders and senior management of Japan's insurance industry, including Ryotaro Kaneko, threatened to refuse cooperation. They also warned that the insurance industry could never withstand the entry of insurance firms from the United States and Europe.
Despite this protest, a reform of the entire Japanese financial industry in accordance with U.S. wishes, called the Big Bang, began in 1996. Japanese insurers had to open to foreign competition, tariffs evaporated, and financial and insurance markets were deregulated, or "demutualized." The Big Bang reform was completed in 2001.
Due to the deregulation of the Big Bang and the general financial downturn following the currency crisis of 1997, dozens of Japanese insurers went bankrupt. From a financier's point of view, the Big Bang began an overdue wave of consolidations and mergers that made the financial sector and individual firms more profitable to shareholders. From an insurer's point of view, the changes threatened to undermine the value of insurance policies at a crucial moment in Japan's demographic shift. Kaneko, who became president of Meiji just after the Big Bang began, understood the full ramifications of deregulation and the changing demographics. He made educating the insurance industry and financial sectors about these ramifications central to his reform efforts while working to safeguard the interests of policyholders.
The Japanese baby boom following World War II created a large, young population that was able to finance social security and private insurance portfolios because more people were paying in than were withdrawing. As that generation aged, the growth of new premiums slowed while the rate of policy payments increased; this trend is expected to continue until after 2020. In addition, more people in Japan sought wealth management as they scrambled to prepare for retirement. Kaneko understood that Meiji would have to prepare for these marketplace changes while dealing with the repercussions of the Big Bang.
Kaneko made clear statements of his commitment to company policies, which kept both the policyholders and the Japanese economy in mind. On one occasion he said: "Under the rapid introduction of de facto standards and increased competition from new market entrants from other industries and overseas, it has been increasingly important for Japanese insurers to achieve proper allocation of management resources, in addition to keeping the competitive edge by improving cost efficiency" ( Asia Insurance Review , November 15, 2000). Specifically, Kaneko directed Meiji to develop new products combining traditional insurance with retirement savings. For example, in April 2000 Meiji replaced its main insurance product with a new product called Life Account L.A., which combined an easily liquidated savings account and a traditional life insurance policy.
On the corporate level Kaneko sought increases in operational efficiency. He formed alliances with other firms when it seemed beneficial but refused to form them when they did not serve policyholders. For example, he refused to ally Meiji with Tokio Marine and Fire Insurance because only the shareholders would benefit while policy values might be deflated. Far from causing a rift or incurring enemies, Kaneko won praise for his principled stance even from Tokio. Finally, he encouraged savings through the use of information technology; Meiji realized significant savings through an overhaul of its infrastructure from three computer systems to one.
Kaneko's grasp of the economics of the insurance industry, his commitment to policyholder benefits, and his comprehension of the role of Japanese insurance within the global economy paved his way to the presidency of Meiji and gained him the respect of the Japanese corporate world. His reputation made him the unrivalled choice for head of the Japanese insurance-industry group, Life Insurers Association of Japan, from 2001 to 2004. Kaneko used his stature to weigh in on the practices of insurance companies, the ethics of business practice in Japan, and government policy.
The collapse of seven large insurance firms due to the Big Bang led to calls within the industry for greater attention to the bottom line. Since 1998 the government and private insurance companies were jointly responsible for meeting the obligations of failed firms. By 2001 the portion to be paid by the private firms had already been reached. Fearing that more failures were inevitable, Kaneko publicized the state of the insurance and financial industry to the Japanese public. He called on the government to extend its coverage of failures beyond 2003. Then he refused to keep quiet as insurance companies underpaid policy claims to improve their solvency. Kaneko demanded full payment of policies because the practice of underpaying would devalue policies in general, thus devaluing the assets of insurance companies. This cycle of devaluation placed Japan's newly established growth index at risk. His stance boosted Meiji's stature among an insurance-buying public, and it also stemmed such duplicitous practices.
The continuing stagnation of Japan's economy in the early 21st century, combined with the awareness of demographic shifts, demanded a restructuring of the insurance industry. While 26 percent of global insurance-premium income came from Japan and its per-capita insurance rate was the highest in the world, an impending peak in population meant a steadily older population demanding insurance and greater levels of policy payments. Kaneko took this inauspicious moment to coordinate a merger, made possible only since the completion of the Big Bang in 2001, with Yasuda. Kaneko felt that only a larger insurance company would survive the existing business environment.
Liberalization demanded transparency throughout corporate Japan. The insurance industry was not alone in admitting it had kept bad books, engaged in racketeering, or been less than forthcoming in its accounting practices. Electric-company officials were actually arrested on racketeering charges. Heads of corporations cooperated with police investigations, sacked managers, and asked their workers directly to improve their personal ethics as part of a general effort to renew the Japanese business culture.
Facing the stress of a merger and the mounting evidence of malfeasance, Kaneko used direct communication with employees through addresses read over internal broadcast systems and at company rallies. Tapping into traditional Japanese workplace pride, he urged employees to individually strengthen the collective task: "Think what each of you can do for the new company. Think dynamically and act bravely" ( Daily Yomiuri , January 7, 2003). Meanwhile, Mikihiko Miyamoto, president of Yasuda Mutual Life and soon to be chairman of the merged firm, delivered similar encouragement to the workers at Yasuda by appealing to their sense of good manners in the run-up to the merger. Both sentiments reflected a widespread feeling in the Japanese corporate world as it continued to recover from the economic downturn as well as the series of scandals rocking Japan.
Women traditionally sold insurance policies in Japan and it was mostly a clerical job. However, Kaneko instituted a gender-blind hiring policy and demanded that sales staff be trained to become personal financial managers. In the months before the merger, Meiji hired seven thousand new salespersons and Yasuda hired three thousand. When completely merged in 2004, Meiji Yasuda Life Insurance had assets totaling ¥26.8 trillion with a sales staff of 48,971. Though a stronger firm, savings from the merged insurance company could never compensate for money lost on investments while the Japanese economy struggled from 1997 to 2002. Only Japan's continuation of a strong growth rate begun in 2003 alleviated that problem. This proved Kaneko correct: the insurance industry must act for the benefit of the whole economy and with an eye on the long-term trend as the means of safeguarding a company's bottom lines. Decisions based on economic downturns served nobody's interests.
In 2001 more than one-quarter of global income from insurance premiums came from Japan, making it an attractive market for foreign investors. Since insurance capital secures the rest of the economy, any weakening of policyholder wealth or insurer's fiscal health threatens the health of the global economy. Japanese insurers who are attentive to their policyholders' needs, therefore, hold a great deal of power. In a world of increasing risk due to terrorism and global climate change, insurers like Kaneko found themselves taking public positions on government policy in order to safeguard their policyholders. He recognized that in a globalized business environment that demanded deregulation, governments would make efforts to cut social security. Insurance companies, therefore, had to defend individual policyholders by enabling greater selfreliance.
"Corporate Leaders Seek Reform for 2003," Daily Yomiuri , January 7, 2003.
"From The Chief Delegates Files—Quotes For The Day," Asia Insurance Review , November 15, 2000.
"Fujitsu Expertise and a Microsoft Windows-based Infrastructure Increase the Business Agility of Meiji Life," http://www.microsoft.com/resources/casestudies/ShowFile.asp?FileResourceID=3137 .
"Hold Japan's Feet to the Fire; Trade: Refusal to Open the Insurance Industry Could Trigger U.S. Sanctions and a Further Loss of Trust," Los Angeles Times , June 30, 1996.
"Integration Not to Help Policyholders—Meiji Life," Jiji Press English News Service , September 19, 2000.
"Kaneko Cautious on Life Insurers' Yield Cut," Jiji Press English News Service , July 19, 2001.
Kaneko, Ryotaro, "Down, But Not Out: Japanese Life Insurers Face New Challenges," LIMRA's MarketFacts Quarterly 21, no. 4-5, October 1, 2002.
"Life Insurers Can No Longer Afford to Fund Industry Safety Net," Kyodo News , October 19, 2001.
"Meiji Life Insurance Company," Hoover's Company Capsules , July 6, 2003.
"Meiji Life to Merge with Yasuda Mutual," Japan Times , January 25, 2002.
Nagamasa, Tsutomu, "Review of the Japanese Insurance Industry," Financial Times: Global Insurance Directory , 2001, pp. 17–18.
—Jeremy W. Hubbell