Based on a combination of detailed modeling and analysis of preliminary damage information, Risk Management Solutions (RMS) estimates the total insured property loss from the powerful M9.0 Tohoku Earthquake and Tsunami will be between ¥1,500 and ¥2,170 billion (US$18 and $26 billion). After combining expected payouts by the life and health insurance sector for deaths and injury, the total insurance loss from this event is likely to be between ¥1,750 and 2,840 billion (US$21 and $34 billion). The earthquake and tsunami will reflect the largest insurance loss in more than five years, affecting many different lines of coverage in both the local and international markets.
The insured loss total reflects losses across multiple lines, including local market residential, co-operative insurers, domestic and international commercial and industrial lines, international facultative placements, marine and aviation lines. The losses for commercial and industrial risks are modeled to include the impacts of both direct and contingent business interruption. Also included is the expected impact of post-event loss amplification, particularly to the commercial and industrial lines. The insured loss estimate does not include any impact from damage to the Fukushima Daichi nuclear power facilities, as nuclear risks are excluded from all these coverages.
“Insured exposure in Japan is a complex landscape of coverage, varying considerably by class of exposure and line of business,” said RMS’ chief research officer, Robert Muir-Wood. “The biggest challenge to loss modeling of the Tohoku event is not the details of the property damage itself, but rather sampling and modeling the underlying pattern of insurance take-up rates and restricted terms of coverage. Residential and commercial earthquake insurance was purchased in areas where people perceived the threat, but the Tohoku earthquake was not an event they were led to expect.”
Residential earthquake insurance in Japan is subject to the provisions of the Japan Earthquake Reinsurance Company and is not reinsured outside Japan. RMS estimates that losses to household coverage purchased through a commercial or co-operative insurer will be between 50% and 60% of the total property loss, with commercial and industrial payouts estimated to be between 30% and 35% of the total.
The highest uncertainty in loss estimates for the Tohoku Earthquake relates to the degree to which corporations are successful in claiming under contingent business interruption protection. The disruption in the global supply chain of critical parts for just-in-time manufacturing is already leading to downstream interruption in manufacturers operations in key battery, flash memory, mircrochip and automotive production, both in Japan, as well as in the U.S. and Europe.
Life & Health Implications
The Tohoku Earthquake is above all a major humanitarian disaster. As of April 10, there are over 13,000 confirmed deaths, with approximately 14,600 people missing. Over 440,000 people have been displaced from their homes by the earthquake, tsunami, and radiation alert.
A very high proportion (approximately 90%) of Japanese households has at least one life insurance policy, with the average individual life coverage for an insured person in Japan exceeding $300,000. Life insurance coverage falls off rapidly with age, and the older age profile of the victims suggests that life insurance coverage in this event will be much lower than the national population average.
Individual life is the largest exposure, with group life and group personal accident exposure significantly less. Many of the factory workers and municipal employees affected by the tsunami are expected to have group life and personal accident coverage for modest benefit levels.
Informed by reconnaissance efforts, RMS has developed a paper on the 2011 Tohoku Earthquake and Tsunami, outlining the scope of damage, the magnitude of insured losses to the main lines of business, and the key drivers and uncertainties of the loss estimates.
Source : RMS Press Release