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All you need to know: German Companies doing business in Japan

Marktreport International – Japan


Andrew Vigar, Country Lead

First published in   Die VersicherungsPraxis.

German companies have been doing business in Japan for many years. Companies investing in Japan value not only the size and wealth of the market, where “Made in Germany” is a recognized mark of premium quality, but also a level of stability and security Japan represents. In fact, the longer German companies stay in Japan, according to a 2016 report by the German Chamber of Commerce in Japan, the bigger profits they make. Japan is a market of long term and long term relationships.

But, Japan is changing fast, and attention on Japan will only intensify as it becomes the centre of international focus hosting the 2019 Rugby World Cup (it’s first international sports event since co-hosting the 2002 Football World Cup where Germany finished, unusually as “only” runners-up) and the 2020 Tokyo Olympics. According to the International Federation of Robotics, World Robotics 2016 Industrial Robots report, the Republic of Korea is on top with 411 robots installed per 10,000 employees. It is followed by Japan with 213 robots, Germany with 170, Taiwan with 159, and Sweden with 154 units.

What does this mean for the Japanese insurance industry and for the German companies buying insurance in Japan? What has happened in Japan in terms of risk management since the 2011 Triple Disaster of the Tohoku Earthquake, tsunami and nuclear incident and what are the types of challenges that German companies face in general when operating in the Japan?

The Japanese insurance market

First let’s consider the insurance market in Japan.

Japan has the second largest insurance market in the world, but in terms of insurance penetration and density Japan trails behind many developed countries, in terms of non-life premiums in 2015 Japan ranked 40th as a percentage of GDP and 32rd per capita influenced by Property and Casualty rates reflected respectively in Japan’s long term attention to risk quality and aversion to litigation.

There are 30 non-life domestic insurance companies (28 direct and 2 reinsurers) but three insurers account for around 90% of market share these are Tokio Marine, MS&AD and Sompo Holdings. Foreign insurers account for 6% of the market and there are 23 insurers licensed to write business, including Lloyd’s Japan.

On average Japan suffers 2,000 earthquakes a year, although this rose to over 10,000 in 2011 after the Tohoku earthquake and 6,000 in 2016 after the Kumamoto earthquake.

The latest series of earthquakes that hit Kumamoto and Oita prefectures between 14th and 16th April 2016 caused 49 deaths and 3,000 injuries. Large numbers of buildings were damaged by Shock and the fires following the quake. As a result supply disruptions caused by the quake, forced the major car manufacturers to suspend production. .

Although business interruption should form a core part of a company’s disaster recovery strategy, insurers estimate that fewer than 20% of policyholders buy cover.  

The 2011 Tohoku triple event of earthquake, tsunami and nuclear incident led to an estimated US$211 billion of economic loss of which US$33 billion was insured. Japanese businesses spend more capital on earthquake-resistant buildings or spreading their manufacturing base to mitigate potential losses from natural catastrophe than purchasing earthquake insurance or business interruption insurance, this is partly due to the perceived relative cost of these insurances although there has been an increase in Japanese corporations benchmarking their insurance cover against global peers leading to an increase in some new, large additional earthquakes and business interruption covers being placed, especially through the global brokers. Although in 2015 still 99% of insurance business was placed through agents or directly and less than half a percent through brokers.

The aftermath of the Fukushima incident following Tohoku in 2011 led to the complete shutdown of the Japanese nuclear industry. Since then, only five units have come back on line. The Japanese Government is pushing for a full resumption of nuclear generation, but struggles to win back public confidence. In the meantime, significant investment is being made in solar and wind power.

Power companies tend not to buy very large limits. The leading power generators have sufficient spare capacity not to consider Loss of Profits insurance since disruption at one plant can be made up by another so the only demand comes from machinery breakdown loss of profits from the smaller independent power producers where there is minimal diversity of supply.

Whether because of climate change or otherwise, typhoon losses seem to be on the rise with average losses growing from JPY80bln during the period from 1989 to 2003 to JPY100bln during the period from 2004 to 2012. In 2016 there were a record number of seven typhoons making landfall in Japan.

In a normal year, between 25 to 30 typhoons hit the Pacific whilst only 3-4 actually strike Japan and Tokyo itself is rarely hit and the Tokyo Bay Area is well protected by sea defenses. The Japanese coastline is protected from sea surge by tsunami walls, but these provide little protection from severe typhoons which can produce surges of up to 6 metres. Most damage is caused by wind, which can reach 70metres per second but damage can also occur from resultant flood and water penetration.

The fastest growing area of the business in Japan is Third Party Liability due to the spread of products such as D&O, Recall and Warranty and Indemnity. As elsewhere in the world the ever growing internationalization of Japanese enterprises has encouraged an increase in indemnity limits especially where contractually required by foreign partners.

This interest in specialty and third party liability may be one of the benefits to the Japanese mega insurers of their recent international acquisitions which have strong reputations in these product areas.

German – Japanese relationship

Japan is Germany’s second most important business partner in Asia and Germany is Japan’s biggest partner in Europe. In 2015 the trade volume from Germany into Japan was Euro 17bln and Euros 20 billion in the other direction according to the German Chamber of Commerce in Japan.

There are 1,600 Japanese companies operating in Germany mainly around Düsseldorf, Frankfurt and Hamburg and according to AHK Japan, 450 branch offices of German companies in Japan, the majority in the Tokyo area and Osaka-Kobe with the numbers rising and more than half of these doing business with Japanese companies outside Japan.

In a 2016 survey by AHK Japan, 85% of German companies interviewed said they valued reliable relationships as an important strength of doing business in Japan and 91% that Japan had a great potential for sales growth. Japan is certainly a market of high customer expectations and service, but the 127 million inhabitants have an average per capita income of US$42,000 per head.

In terms of challenges for German companies operating in Japan, finding qualified staff seemed to be high on the list, especially employees with international experience and well-educated Japanese still are more attracted to work for the large Japanese conglomerates. 

Tight regulation, high corporate tax rates, labour protection and the fluctuating exchange rate were other challenges cited.

Reliable relationships and trust are the basis of Japanese business culture. This can be recognized in many forms: people and meetings will always be conducted in a courteous, positive manner where particular care will be taken not to cause offence and maintain emotional control over language and body language. My personal rule of thumb is that in Japan people imply whereas westerners explain and modesty is a virtue whereas in the West it can be seen as a weakness.

Like all good, long-lasting friendships, Japanese people are very comfortable to take their time to ensure that there is mutual trust and look for win-win situations. Japanese society is based on community, witness the pictures and footage of incredible solidarity following the Tohoku earthquake, and this includes teams in the work environment which are consensual, somewhat formal, following protocol, deferring to seniority but open and expectant of innovation as much as procedure.

Once a decision is made, the teams move very fast and in my experience Japanese businessmen are expert at internal communications and awareness and expect their business partners to do likewise. I once went to visit the CEO of a Japanese company in Singapore on a Monday morning, who was already aware that we had just concluded a business transaction for  an affiliated company, on the other side of the world on the previous Friday evening!

Doing business in Japan – some ideas

So what does all this mean to the strategies that a foreign businessman can adopt when visiting and doing business in Japan? We could write a book or two on this topic, and I am sure many of the readers of this article know much more than I, but here are a couple of ideas:

Take the time to build the relationships, and be comfortable in the time it takes. Once the relationship is built well, which is beneficial to both parties, we can be surprised how quickly things can develop and indeed my experience is Japanese companies actually move much faster at this stage than western companies, as often times western companies still need to discuss with their management, whereas for the Japanese company it is already agreed.

Plan your meetings ahead and use informal discussion to agree matters outside the meeting room so that they can be warmly confirmed in a formal meeting. A picture paints a thousand words. If conducting the meetings in a second language in particular it is often beneficial to use pictures and diagrams and always follow up and confirm in writing.

Finally, enjoy the time it takes to build the consensual relationships needed in Japan. Sometimes we can back ourselves into a corner because we set a certain time for a business trip and have to rush to get results. If it is possible, add an extra day or two to each visit, spend the time with your business partners and their teams and build the rapport and friendship.

I met my oldest Japanese friend 25 years ago when he was the representative of a Japanese insurer in Vienna and I was working with a broker in Poland. He is the godfather of my now eighteen year old daughter, and yet we have never, and never will, address each other by our first names! But we have “en”, ‘tiefere Freundschaft”.

About the author

Andrew Vigar is XL Catlin's Country Manager for Japan. You can reach him at

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