BRISBANE, Australia-Competition is likely to increase in the Japanese insurance market as deregulation continues, a Japanese insurance professor says.

For risk managers, the deregulation would mean greater choice of products and lower premiums, said Kazuo Ueda, professor of risk and insurance in the Department of Commerce at Sensyu University in Tokyo. Mr. Ueda was in Australia to research the Australian insurance industry and plans to write a paper comparing the Australian and Japanese markets.

Mr. Ueda said Japanese insurers will have to compete with foreign insurers after July 1, 1998, but it is still only "partial, not full, deregulation."

"The Japanese government is committed to change, but it should happen slowly, given that the Japanese market has no experience with competition," he said.

There are 32 non-life companies in Japan, which has a population of about 125 million.

"Insurance costs are high because there are too many agents and a high staff turnover (of agents)," Mr. Ueda said.

As a result, Japanese insurers' training costs are high, and many of their agents are inexperienced, he noted.

Mr. Ueda predicted Japanese risk managers will become more interested in risk financing alternatives, such as captives, once the market becomes more open and Japanese buyers have an incentive to become more sophisticated in their insurance choices.

He also predicts an increase in the strength and number of insurance brokers once risk managers have a wider choice of insurers, products and coverages.

In the current regulatory environment, Mr. Ueda said there is little differentiation of rates, regardless of a policyholder's risk.

As insurers are permitted to vary rates according to loss exposure or claims experience, the importance of risk management will escalate, he said.

"Because there is no effective competition in the Japanese insurance market, management has no incentive to minimize risk factors," he noted.

Under the new insurance law, the Japanese Insurance Rating Organization, which sets rates, still will calculate a base rate for non-life coverage, but Mr. Ueda said that insurers then could adjust that base rate to better correspond with their own profit and expense margins. Under the current regulations, insurers cannot make adjustments to the government-set rates.

"Although the process of change in Japan will be gradual, it will nevertheless take place," Mr. Ueda said.