Long regarded as one of the world’s most stable insurance markets, Japan’s non-life sector is now experiencing major disruption. Deregulation aimed at unwinding keiretsu-style cross-shareholding agreements between insurers and their clients is freeing up capital and reshaping longstanding business relationships.

As these tight-knit relationships begin to loosen, new openings are emerging for U.S. insurers to compete for Japanese corporate accounts. Simultaneously, Japanese carriers must find ways to reinvest their freed-up capital in accordance with the new Economic Value-Based Solvency Regulation (ESR), which is similar to the EU’s Solvency II framework. This important pivot could create increased competition for U.S. carriers from Japanese insurers.

Before insurers in both nations can fully capitalize on these changes, they will need to make strategic shifts in the way they do business, including accelerating their technological adoption.

Understanding the Market Transition

In the decades following World War II, keiretsu-style policies reinforced business ties within Japan, helping the nation’s insurance market grow into the third largest by volume globally. More recently, however, concerns about inefficiencies, corporate governance and market opacity created a move toward deregulation.

The push began in 2020, when Japan announced it would adopt ESR standards by 2025, a transition that formally began this spring. Then, in September 2024, the General Insurance Association of Japan issued guidelines requiring member firms to divest themselves of all existing cross-shares. Together, these reforms aim to reduce conflicts of interest, improve capital efficiency, create greater transparency and attract more foreign entrants to the Japanese market.

While both regulations are still in their earliest stages, we have already seen Japanese life insurers engage in strategic mergers and acquisition activity to better manage their risk. Last December, for example, Japan’s Nippon Life acquired U.S.-based Resolution Life for $8.2 billion, the largest overseas acquisition by a Japanese insurer to date.

Yet the evolving regulatory environment represents just one of many challenges for Japanese carriers. An aging population (nearly 30 percent of Japanese citizens are 65 and older) is reducing demand for traditional life products and increasing the demand for specialized health, life and annuity products. Simultaneously, younger generations in Japan are seeking the same personalized, tech-driven insurance experiences that consumers in other countries already receive and driving continued demand across the property and casualty space.

While legacy technology impedes insurance innovation across all borders, the problem is more acute in Japan, which is more risk-averse culturally than other nations. Moreover, when Japanese carriers undertake a large-scale digital transformation project such as modernizing or replacing legacy systems, it creates the possibility of layoffs, something that is culturally and legally sensitive in Japan.

Identifying Opportunities and Challenges for U.S. Insurers

With the Japanese market experiencing rapid transition, the door is open for U.S. firms to introduce capital-efficient products, form reinsurance partnerships or co-develop offerings that blend American innovation with Japanese scale.

However, doing so effectively will require some diplomacy and finesse. Business leaders in Japan value collaboration over transactions. As a result, U.S. insurers should aim to forge mutual partnerships with Japanese carriers instead of trying to push the market forward on their own with aggression.

When it comes to innovation, U.S. companies should position themselves as partners that can help Japanese insurers achieve a higher degree of personalization without requiring a legacy system overhaul. Making this happen means investing in modern, modular technology platforms that will enable faster product launches, flexible pricing and rapid entry into niche markets. Carriers that bring capabilities like no-code and low-code development, API integration of cloud-native architectures to Japanese insurers will build stronger collaborations and help their cross-border partners develop new, in-demand products like embedded insurance.

Bridging the Cultural Divide

It is not possible for U.S. insurers and InsurTech companies to gain traction in Japan without fully understanding the vast cultural differences between the two nations. While American corporations may be known for a move-fast-and-break-things approach to conducting business, Japan is starkly different.

For one, the decision-making cycle in Japan is slow but thorough, so U.S. executives should prepare for longer lead times and seek to build consensus. In addition, Japanese firms take a long-term view of their businesses. They do not seek quick wins. Instead, they look at what the next decade might bring, then balance the potential growth opportunities over that timeframe with the emerging risks and customer demands.

Attracting consumers is also different in Japan versus the U.S. In this regard, American insurers would be wise to follow the lead of other U.S. companies that entered the Japanese market successfully.

One shining example is McDonald’s, which made its debut in Japan in the 1970s. Rather than simply imposing Big Macs and other American menu items, the fast-food chain embraced local tastes, adding menu items like the Teriyaki McBurger and seasonal desserts inspired by flavors such as matcha and mochi. This localized approach resonated with Japanese consumers and sparked decades of success, with McDonald’s reaching net sales of 405.5 billion Japanese yen ($2.8 billion) at the end of last year.

Another crucial consideration for U.S. companies is evaluating the geopolitical landscape. While Japan is a close U.S. ally, regional dynamics—such as rising U.S.-China tensions, instability in the Taiwan Strait or provocations by North Korea—could impact investor confidence and regional operations. Amid this potentially volatile landscape, demonstrating operational resilience and robust contingency planning will be key to gaining and maintaining trust.

Finding Opportunities and Challenges for Japanese Insurers

Some of the largest Japanese insurers, including Tokio Marine and MS&AD, already have an extensive specialty lines presence in the U.S. Now, with access to increased capital from cross-share selloffs, carriers in Japan will seek to grow their books of business internationally. This will mean increased competition for U.S. carriers.

Japanese companies that want to expand across borders successfully will need to upgrade their technology stacks and take a bit more risk than they have traditionally. That’s because, when it comes to core insurance systems, Japan still lags behind many Western markets in terms of digital readiness.

The good news for Japanese insurers is that the cost of digital transformation has come down significantly over the past decade, making modern technology far more affordable and accessible. The bad news is that many still depend heavily on external vendors to maintain and update their legacy systems, leading to vendor lock-in that limits flexibility and slows innovation.

Low-code and no-code technology alleviates this problem by enabling companies to develop new products without deep IT expertise. Furthermore, companies do not need to decommission their legacy systems to adopt no-code. They can instead run the no-code solution in parallel and gradually decouple functionality from their mainframe system, allowing them to innovate faster without creating serious disruption.

Now Is the Time

The end of keiretsu brings a rush of excitement—and capital—into the global insurance ecosystem. Yet while insurers and InsurTech companies should act now, U.S.-based organizations should remember success in Japan is a phased approach—not a leap forward. American companies willing to localize their offerings and commit to long-term partnerships will gain a market advantage over those that move too quickly.