[Well-Dying Financial Planning]③"Care Is Also an Industry"... How Sompo Transformed Japan's Nursing Market and the Challenge for a Korean Model

Japan Also Faced a Surge of Small Operators 20 Years Ago
Decline in Nursing Service Quality Prompted Incentives
Tax and Financial Benefits Used to Encourage Private Entry
Korea Should Ease Land Ownership Rules for Facilities with Over 30 Re

The opinion that "industrialization" is inevitable to improve the quality of care and nursing services is gaining traction. Until 20 years ago, Japan experienced a decline in service quality due to the prevalence of small-scale businesses run by individual proprietors. The country addressed this issue by encouraging large private companies to enter the market and restructuring the industry. At the center of this transformation was Sompo Care, a subsidiary of one of Japan’s major non-life insurance groups, which reorganized the market through proactive mergers and acquisitions (M&A). This was the result of the Japanese government encouraging the participation of competitive companies through tax and financial support. As Korea faces similar challenges, calls to ease regulations that block the entry of private companies are growing louder.

A Market Centered on Small Individual Proprietors... Declining Service Quality and Competitiveness

According to the financial sector on March 19, Japan is a prominent example of a country that has successfully industrialized care and nursing services. Song Yoonah, a research fellow at the Korea Insurance Research Institute, explained, "Like Korea, Japan also suffered from a decline in overall service quality as care services were mostly provided by individual proprietors until the early 2010s. The situation changed when large corporations such as Sompo Care entered the market through aggressive M&A."

As addressed in [Well-Dying Financial Planning ①, ②], the decline in the quality of care and nursing services in Korea stems from a structure where numerous small-scale individual businesses compete. While service quality tends to improve when provided by large corporations able to secure economies of scale, under current law, facilities with 30 or more residents must own the land and building, creating a structural barrier. In contrast, small businesses with fewer than 10 residents are not subject to these regulations, making it easy for individual proprietors to enter the market by leasing properties.

This regulatory structure has, paradoxically, led to a decline in overall service quality in the market. Research fellow Song explained, "As the dual regulatory structure persists, the market has become dominated by small-scale operators. This easy market entry has led to excessive competition and, as profitability deteriorates, frequent business closures that undermine the residential stability of users." With many operators lacking sufficient capital, investment in service improvements is inevitably limited.

Japan Faced the Same Problem 20 Years Ago... Introduced Incentives to Promote Industrialization 

This was an issue Japan also faced 20 years ago. At the time, the Japanese government lowered barriers for individual proprietors to enter the market in response to an aging population. However, over time, the aging of business owners and the deterioration of facilities compounded to worsen service quality.

To address this, the Japanese government actively pursued "industrialization" of the care service market after 2010, shifting its policy to encourage the entry of large corporations. According to the final report "Strategies for Promoting Insurers' Entry into the Silver Industry," obtained by The Asia Business Daily from Seoul National University’s Industry-University Cooperation Foundation, the government began providing strong incentives for capital-rich corporations in 2011 by amending the Senior Citizen Housing Stability Act.

Private corporations that secured medical staff and operated facilities for more than 10 residents for over 10 years received government support for one-tenth of their business expenses. If they acquired and renovated existing buildings, they received subsidies covering one-third of their expenses. Additional support included tax breaks of up to 83% for five years and unprecedented financial support such as 35-year fixed-rate loans for 100% of facility construction costs.

Sompo Care Actively Entered the Market Fostered by the Government... Became the No. 1 Operator in Number of Facilities 

Within this environment, Sompo Care made a full-fledged entry into the nursing care market in 2015. Through aggressive M&A, Sompo Care sequentially acquired facilities previously operated by individual proprietors. Small-scale business owners who found it difficult to adapt to the strengthened quality regulations naturally became acquisition targets. Research fellow Song explained, "M&A quickly spread as it provided an exit strategy for individual business owners."

According to the Korea Insurance Development Institute, Sompo Care succeeded in turning a profit in a short period through aggressive M&A, becoming Japan’s largest operator by number of facilities. Currently, about 90,000 residents are housed in its facilities, and the company employs approximately 25,000 staff members.

Sompo Care enhanced service quality by integrating IT into acquired facilities. The company built a "Nursing Real Data Platform" that analyzes resident data to provide customized care and introduced automation systems to reduce administrative burden on care workers. This enabled care staff to focus solely on "hands-on care" where human attention is needed. As a result, occupancy rates increased from 84% in 2016 to 94% in 2023, and the turnover rate among care staff dropped from 25% in 2016 to 11% in 2020.

Sompo Care is also credited with improving the competitiveness of the entire market by selling or sharing its platform with other care providers that faced difficulties with digital transformation.

Calls for the 'Industrialization' of Korea's Nursing Care Services

In addition to Sompo Care, several other capital-rich corporations have entered the Japanese market. In 2024, Japanese life insurer Nippon Life acquired Nichii Holdings, which had established a strong presence in the nursing care market. Nichii Holdings operates a wide range of facility-based care businesses, covering everything from prevention to severe care, recognizing the potential of the facility-based care market in Japan. Although not an insurer, Gakuen Kokopan, an educational research company, also provides home-visit care services attached to its facilities in Japan.

Experts advise that Korea should also take note of Japan’s experience. In particular, there are calls to relax restrictions on leasing operations for facilities with more than 30 residents to encourage the entry of corporate businesses. Seoul National University economics professor Hong Seokcheol stated, "As there are limits to how much the public sector can respond to rising care needs, it is rational to enhance the overall supply capacity of the market while addressing any side effects from private sector participation." A financial sector official added, "This does not mean all regulations should be lifted unconditionally, but that a foundation should be established so that trustworthy corporations can aggressively expand supply. Operators with sufficient capital and brand credibility should be allowed to run facilities through leasing arrangements."

"Public Sector Alone Cannot Meet Growing Demand"

However, some argue that strengthening public oversight should come before easing restrictions on private sector leasing. Research fellow Song pointed out, "There are not many publicly operated nursing facilities at present, but even if only symbolically, the public sector should ensure a certain level of service quality to set the standard." She added, "The Seoul Nursing Home, established by the National Health Insurance Service, is both competitively priced and offers quality services. It is important for local governments to expand and improve public facilities first."

The Ministry of Health and Welfare, the responsible authority, also expresses concerns about potentially undermining residential stability. Allowing leasing could lead some capitalized companies to focus only on collecting residents’ deposits, running short-term businesses. In 2011, Southern Cross Healthcare, a major UK nursing home operator, closed around 750 facilities due to financial difficulties, forcing thousands of residents to relocate. Professor Hong explained, "At the time, the facilities were acquired by other large businesses and non-profit organizations, which resolved the problem. Afterward, the UK strengthened supervision through regulatory agencies but did not ban leasing operations outright." He added, "It is not desirable to prevent industrialization entirely; rather, thorough oversight must be strengthened to prevent problems."

The reality is that demand is set to surge. Analysis by Seoul National University projects that the number of people certified for long-term care will increase more than threefold, from 1.05 million in 2023 to 2.97 million in 2050. This means the population needing care due to difficulties with daily activities will rise rapidly. As the population ages quickly, the structural demand for care will inevitably expand, especially among those aged 75 and older. In fact, the proportion of the population aged 75 or older is expected to jump from 7.7% in 2023 to 10.7% in 2030 and 30.7% in 2070. While demand is expected to soar, the supply of care services is unlikely to keep pace.

This content was produced with the assistance of AI translation services.