Management Message

Kengo Sakurada
President & CEO
Sompo Holdings,Inc.

The Role of Companies in Japan as They Become Frontrunners in Addressing Social Issues

I believe that volatility, uncertainty, complexity, and ambiguity (VUCA) best describe the current era of the 21st century. We live in truly turbulent times. Rapid globalization and innovation in digital technology that are stemming from the fourth industrial revolution are enabling us to do things that were once completely out of reach. On the other hand, these advances have led to social inequality and division. Moreover, dissatisfaction over growing income gaps and inequalities of opportunity is fueling populism and national particularism trends. In addition, ethical issues related to personal information protection and human rights are emerging. Thus, humanity faces the task of realizing the ideals of the Sustainable Development Goals (SDGs) by creating a society that is sustainable and inclusive and in which “no one will be left behind.”

The urgency of this task was made even more apparent to me by significant changes to the annual meeting of the World Economic Forum, often called the Davos Conference, which I attend every year. In 2019, the theme of the meeting was “Globalization 4.0: Shaping a New Global Architecture in the Age of the Fourth Industrial Revolution.” As a participant in a panel discussion, I took part in discussions with people from many different walks of life—including a representative of an environmental NGO, a scientist, a musician, and a student activist—on how to use technology and human intelligence for the happiness of society and humanity as well as how best to use technology to eliminate social inequality and division and other negative byproducts that are stemming from technological innovation.
In my view, we must find a way for people and digital technology to coexist harmoniously without forgetting that society will remain centered on people or that digital technology is meant to benefit humanity. Furthermore, I think Japan is well placed to become a country that uses technology and human intelligence to provide leading-edge solutions that mitigate the negative aspects of technology and technological innovation.
I say this because valuing social morality and altruism is a particular feature of traditional Japanese ethics. For example, the world was taken aback by the sight of people who, in a situation where they might have been excused for rioting, patiently waited in line to receive rations following the Great East Japan Earthquake or by fans who take their trash home even if their team loses a match at an international soccer tournament. This mind-set and the resulting society are among the country’s core strengths.
A further advantage for Japan is the real data* it has garnered from such areas as healthcare, nursing care, automobile driving, and the operations of products. The country has accumulated data over many years through its universal health insurance system. Also, the high-performance production facilities of Japan’s robust manufacturing sector have yielded operational data. Although the accumulation of virtual data* is dominated by companies that have developed huge digital platforms—with Google, Apple, Facebook, and Amazon being among the most well-known in this field—I believe Japan has the potential to create innovative products and services based on real data.
* “Virtual data” refers to data that is exchanged via the Internet. “Real data” refers to data that is acquired from various real-life activities.

In April 2019, I became the chairman of the Japan Association of Corporate Executives (Doyukai). In this capacity, I have been emphasizing making Japan not only valuable, but indispensable, to the common good of the world. A country whose presence is valuable captivates the people of the world, while an indispensable country is one that is trusted by international society and which can provide solutions. Japan’s rapidly aging society will cause significant issues in such areas as national finances, social security, and labor supply. Looking at this positively, however, Japan is a trailblazer in terms of issues that many other countries will eventually have to face. We should see this as an opportunity for Japan to provide international society with solutions.
In addressing its problems, Japan should tackle three tasks. First, companies need to reform themselves to increase productivity. Japan’s labor productivity is below the average for countries belonging to the OECD (Organisation for Economic Co-operation and Development), so we must improve in this area. However, simply reducing working hours risks putting the country on a contraction trajectory. Second, adding as much value as possible is important. To this end, innovation is crucial. Also, achieving innovation calls for breaking away from a homogeneous culture and a conformist mind-set to realize “good clashes” through diversity. Lastly, we should not fear failure that is a result of being bold, a mind-set that Japanese people once had. Instead, we need to regain a mind-set that sees failure as a source of inspiration. Senior executives must consider how to make their companies valuable and indispensable.
They must be prepared to help overcome social issues by agilely revising strategies and transforming businesses. If this does not happen, I feel that Japan and its companies will not survive.

Target Profile—“A Theme Park for Security, Health & Wellbeing”

A Sompo Holdings Group That Is Not Only Valuable but Indispensable
To ensure that the Sompo Holdings Group’s presence is valuable and indispensable in an unpredictable era, we have to keep asking ourselves what we want to be, what kind of society we want to create, and why. We should then envision a target profile and backcast from it to clarify the measures we need to take today. Further, through cooperation among many different stakeholders, we need to transform society and pass on a sustainable society to future generations. Therefore, based on our Group Management Philosophy, which calls on us to “contribute to the security, health, and wellbeing of customers and society as a whole by providing insurance and related services of the highest quality possible,” we envisioned a target corporate profile and sought a mold-breaking business model. These efforts resulted in the vision of “A Theme Park for Security, Health & Wellbeing.” This represents both our target profile and our unshakable commitment.

A Positive Contribution to the Quality of Life through “A Theme Park for Security, Health & Wellbeing”
Under the vision of “A Theme Park for Security, Health & Wellbeing,” the Sompo Holdings Group will give concrete form to the abstract concepts of security, health, and wellbeing. The vision entails addressing social issues and providing cohesive support by accompanying people, who are the focus of society, throughout their lives and by making appropriate use of digital and other leading-edge technologies.
When customers have accidents or become ill, traditional insurance businesses mitigate the effects. In other words, the role of such businesses is to restore things to their original state. This business model does not help customers to stay happy and healthy, nor does it make a positive contribution to their quality of life by helping them to become even happier.
Theme parks, by contrast, are fun. They can make a positive contribution to the quality of life. Similarly, we can develop products and services that not only help in crises but also promote happiness. I believe that realizing this type of positive, theme park business model will enable us to “contribute to the security, health, and wellbeing of customers and society as a whole by providing insurance and related services of the highest quality possible,” in accordance with the Group Management Philosophy. I also want Group employees to tackle their jobs with enjoyment and to always look for ways of promoting customer happiness.

My Mission as the Group CEO

Transformation into “A Theme Park for Security, Health & Wellbeing”
My mission as the Group CEO is to accomplish our transformation into “A Theme Park for Security, Health & Wellbeing.” By “transformation,” I do not just mean changing things, I am referring to qualitative evolution. More specifically, I want to reform our business portfolio and corporate culture qualitatively. Meanwhile, our quantitative targets are adjusted consolidated profit of ¥300 billion and adjusted consolidated ROE of 10%. We will rigorously heighten the appeal of each business. At the same time, the Group will diversify its business fields and sources of profits by rearranging its business portfolio. In this way, we will make our corporate culture more mission-driven and results-oriented.
Innovation in digital technology is disrupting all manner of businesses and industries, and many of them will be drawn inexorably into the whirlpool of digitalization. The “vertical” separation of industries based on a silo approach is collapsing. As digitalization accelerates, it is rapidly bringing down artificial boundaries created between industries and producing completely new business formats. Inevitably, digital disruption will also affect the insurance business, the Sompo Holdings Group' s mainstay business. The enhancement of autonomous technology and forays into the insurance industry by companies from other industries will circumscribe traditional business models centered on insurance. In response, rather than premising strategies on the defense of existing businesses, we must view these changes as opportunities. With the aims of strengthening the advantages of existing businesses, realizing enterprise risk management, and allocating the Group' s resources optimally, we will pursue an M&A strategy and develop new businesses. Through this process, we will reform our business portfolio and achieve significant growth.
In reforming our corporate culture, we aim to take on new businesses as well as risks and switch our focus to output and added value creation based on a strong sense of mission with respect to the building of the Group' s future. For this reason, in my role as a member of the senior management team, I will diversify personnel to encourage “good clashes” as well as fusion. Reforming our corporate culture will also enable us to reform our business portfolio—which is sure to pave the way toward quantitative progress. Therefore, reform of the Group’s corporate culture is an extremely important task. With this in mind, rather than just issuing messages, I want to make sure that all executives and employees understand and embrace their missions. As they work, I want personnel to continuously discuss these missions and analyze how best to achieve them. I believe that changing our personnel and organization in this way is the mission of the Group CEO.

Toward Transformation

Digital Strategy and Group Synergy Creation
To realize transformation, digital strategies are indispensable. Digital technology is integral to enhancing the productivity of and further evolving existing businesses, realizing open innovation, and creating new points of contact with customers.
Moreover, in anticipation of digital disruption by companies from other industries, we have to form alliances with digital platform developers in advance. Under our digital strategies, SOMPO Digital Lab in Tokyo exercises overall control, while our leading-edge bases in the digital hubs of Silicon Valley and Tel Aviv in Israel create businesses that generate new value. I am confident that this three-base system, which has conducted numerous verification tests to date, will enable us to step up the pace of our transformation into “A Theme Park for Security, Health & Wellbeing.”
Customers should experience the value that “A Theme Park for Security, Health & Wellbeing” provides, not as an aggregate of the products and services of the domestic P&C insurance, overseas insurance, domestic life insurance, and nursing care & healthcare businesses but as a solution that seamlessly combines the products and services of these businesses. The keys to achieving this level of integration are digital strategies and real data. Through the provision of services to customers, mainly in the day-to-day operations of its insurance and nursing care businesses, the Sompo Holdings Group has accumulated a huge amount of real data. The Group will be able to realize its unique advantages by maximizing the utilization of such data, interlinking the aforementioned businesses based on its digital strategies, and marketing products and services on a Group-wide basis that offer new value and meet society’s needs.

Our initiatives focused on dementia are an example of Group synergy. The Group entered the nursing care field in earnest in 2015. This gave me a renewed appreciation of the host of serious social issues that accompany a super-aging society. These include the supply-demand gap in the nursing care market, accidents caused by elderly drivers, and the financial risks of longevity. In response to these social issues, not only the nursing care business but also the domestic P&C insurance and domestic life insurance businesses began Group-wide initiatives focused on dementia with the aim of addressing issues in the nursing care market from a demand-side viewpoint, alleviating anxiety about dementia that comes with the development of a long-lived society, and extending healthy life expectancy.
Dementia is a challenging field, with an effective drug for the condition yet to be developed. In Japan, which has a super-aging society, dementia is an issue that concerns everyone. The Group is ideally positioned to offer comprehensive, original solutions in this field because it has both insurance and nursing care businesses, which provide cover in relation to risks and financial needs. Through initiatives focused on dementia, we aim to address social issues boldly, preserve the dignity of the elderly and those with dementia, and create a society without prejudice or discrimination. Japan will be the first country to face the issues of a super-aging society. Our goal is to help build a society in which “no one will be left behind” and whose members are able to delay the onset or development of dementia and live with dignity if they develop the condition.

In response to this evolution in our role, we will focus even more strongly on helping address social issues, contributing to the creation of a sustainable society, and reflecting the needs of diverse stakeholders as we take measures to realize “A Theme Park for Security, Health & Wellbeing.”

Reform of the Group’s Governance
With a view to the realization of “A Theme Park for Security, Health & Wellbeing,” we also need to further strengthen the management structures that support business globalization and the development of products and services contributing to security, health, and wellbeing.
Over the past several years, the Sompo Holdings Group has been steadily strengthening its management structures. In fiscal 2016, we adopted a hybrid organizational structure, which includes a Nomination and Compensation Committee, and a Business Owner system. The following fiscal year saw the establishment of a Group Chief Officer (CxO) system as well as an integrated platform for the overseas insurance business, and we integrated nursing care operating companies in fiscal 2018. Because the above initiatives had given us the experience and implementation systems needed to move into the next phase of our corporate governance, we recently transferred to a governance system that will enable swifter decision-making and more active implementation of measures focused on realizing the Group’s target profile. Specifically, we established the Global Executive Committee (Global ExCo) and the Managerial Administrative Committee in April 2019. Further, in June 2019 the Group transitioned from a Company with an Audit & Supervisory Board structure to a Company with Committees structure. This reform has delegated significant authority from the Board of Directors to executive divisions, clarified the missions of each officer, and introduced a rigorous focus on producing results. Meanwhile, we will strengthen governance capabilities to ensure that the Board of Directors, which is centered on outside directors, can fully realize its supervisory functions.

Realization of Global Management Capabilities
The key to our global management system is Global ExCo, which is an advisory body to the Group CEO. Unlike the Management Committee, in which mainly Japanese participants discussed a wide range of topics, the new body includes executives from overseas and conducts intensive discussions focused on important Group-wide issues, such as strategies and policies. As the highest executive committee, Global ExCo comprises 10 members, of whom two are non-Japanese, namely, the Overseas Insurance Business Owner and the executive officer with overall responsibility for overseas M&A. Having senior executives who have a thorough, intuitive understanding of overseas businesses participate in management discussions will enable us to determine the best methods, systems, and distribution of resources in light of global perspectives. In reaching decisions, Global ExCo meetings gather all types of information from around the world, not just insurance-related information. I doubt that there is a meeting quite like it anywhere. We convened the first meeting of the new body in April 2019. With open-mindedness, considering what is best for the Group, and being rooted in facts as our three premises, we held discussions without fear of “good clashes.” I feel that the response to Global ExCo has been positive and that it will prompt a change in the approach of senior Group executives as well as expedite decision-making and implementation in the Group as a whole, thereby enabling us to achieve transformation early.

Progress under the Mid-Term Management Plan and Target Profile beyond Fiscal 2021

We have completed the first half of our Mid-Term Management Plan. During the plan’s first three years, we made steady progress in laying the foundations for “A Theme Park for Security, Health & Wellbeing.” In fiscal 2017 and fiscal 2018, a series of major natural disasters significantly impacted our performance. Excluding the impact of such natural disasters, however, we have achieved high levels of income and ROE and steadily strengthened the Group’s profitability and capital efficiency. Further, we will take measures to enhance the stability of revenues, such as expanding the overseas insurance business to increase risk diversification benefits and optimizing reinsurance schemes. In addition, we will upgrade analysis of climate change effects and increase the efficiency of mitigation measures for the Group’s natural disasters risks.
Fiscal 2019 and fiscal 2020 will see downside pressure due to such factors as an increase in consumption tax and the amendment of Japan’s Civil Code. Nonetheless, we aim to achieve adjusted consolidated profit of between ¥205 billion and ¥215 billion and adjusted consolidated ROE of approximately 8% in fiscal 2020 by strengthening our business foundations through enhancement of productivity in each business and optimization of the product portfolio. Then, by strengthening our business foundations even further, we will move toward a trajectory of dramatic growth beginning from the next Mid-Term Management Plan and aim to reach adjusted consolidated profit at the ¥300 billion level and adjusted consolidated ROE of over 10% in the early 2020s. By this point, we envision having a well-balanced business portfolio that is split roughly 60/40 between Japan and overseas. At the same time, we will transform significantly, moving beyond the boundaries of the insurance industry.

  • 1 Estimate based on the current definition of adjusted consolidated profit
  • 2 The fiscal year that Sompo Holdings was established.
  • For details regarding ROE, please refer to the link below.

In Conclusion

Achieving an unprecedented transformation will lead to a new type of value creation in the form of “A Theme Park for Security, Health & Wellbeing.” Our goals are to help make society sustainable and to ensure that the Sompo Holdings Group is regarded as a valuable and indispensable entity. To these ends, the Group will engage and cooperate with all stakeholders. Moreover, with a sense of ownership, employees will make a concerted effort to move forward with the Group’s transformation.
As we transform, we would like to ask all of our stakeholders for their continued support.