Tuesday, May 22, 2018

Rakuten takes on Japan’s big three

Rakuten’s acquisition of Asahi Fire & Marine this week could be a portent of how tech players around the world are set to disrupt the insurance industry.

The Japanese e-tailer announced a tender offer for the private insurance company’s shares on Monday. It will end up paying roughly US$415 million for the company, based on a bid of ¥2,664 for each ordinary share and ¥10,656 for the voting shares, if all the shareholders agree to sell. The majority owner, Nomura, has already accepted the offer.

Its strategy is to leverage its customer base and technological prowess to go head-to-head with Japan’s traditional insurers. The company says there are close to 100 million Rakuten IDs in Japan alone and claims “a relationship with over 1.2 billion members worldwide”.

The deal is not just about cross-selling insurance to its customers, which it could easily achieve through a partnership rather than an acquisition. Instead, the move will allow Rakuten to develop new products based on big data analytics, as well as to pitch highly tailored products and services to customers across its diverse business.

Knowing so much about its customers will eventually allow a company like Rakuten to price insurance much more competitively and efficiently than a traditional insurer.

Today, Asahi Fire & Marine is a relatively small player. Net premiums in Japan’s property-and-casualty market are roughly US$75 billion a year and the sector is dominated by the three big companies — Tokio Marine, Sompo and MS&AD, which together control about 90% of the business.

But billionaire founder Hiroshi Mikitani has never been afraid of entrenched competition. One of the world’s e-commerce pioneers, he founded the online shopping mall that would eventually become Rakuten in 1996 and has built it into a group with revenues of more than US$7 billion today.

In addition to e-commerce, its business now includes the messaging service Viber, the Kobo e-reader, online video, travel, a mobile virtual network operator business for discounted smartphone services and professional sports. And just a week before the insurance acquisition, it announced a partnership with Wal-Mart for an online grocery delivery service in Japan.

Like many Japanese companies, Rakuten is also keen to expand internationally, though Mikitani has taken this commitment further than most of his peers. He famously instituted a programme of “Englishnisation” several years ago and all meetings and internal communications are now conducted in English. The company sponsors FC Barcelona, one of the world’s biggest soccer clubs, and the Golden State Warriors basketball team, the 2017 NBA champions.

The acquisition of Asahi Fire & Marine is not Rakuten’s first foray into financial services. It already has interests in credit cards, banking, securities, life insurance, payment services and electronic money. In Germany, it has invested in insurtech startup Simplesurance. By leveraging its customer base through big data, Rakuten’s financial services revenues now contribute 38% of its overall sales.

But Asahi Fire & Marine is bigger than most of those businesses. According to Nomura, revenue for the last full financial year, in March 2017, was US$910 million.

In announcing the tender offer for Asahi Fire & Marine, Rakuten said that it had been considering a move into the non-life insurance sector for a year and first approached the company in September last year.

Of course, China’s ZhongAn has blazed the trail in Asia. Its relationship with Alibaba, its biggest shareholder, has allowed it to sell millions of small policies to Chinese e-commerce customers and Rakuten will aim to replicate that success.

However, most of ZhongAn’s success was initially based on selling very simple shipping insurance policies. Rakuten is aiming to be more innovative in the way that it designs policies, so it will be interesting to see how the business develops during the next few years.

As tech firms increasingly look to monetise their customer bases, it is inevitable that they will become much bigger and more serious competitors in the insurance and financial services sectors. Watch this space.

Share

Related Articles

InsuranceAsia News video

Shoaib Hussain, Milliman

Follow InsuranceAsia News

Partner Content

White Papers

Print Edition

SPRING 2018

Cat pricing unmoved