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Tuesday, May 31, 2011
Quake coverage mitigates losses from March 11
Since the devastating earthquake and tsunami destroyed or swept away thousands of homes on March 11, earthquake insurance has become a hot topic.
Here are some questions and answers on the issue.
What kind of damage does earthquake insurance cover?
It covers housing and housing-related assets, such as furniture and appliances damaged or swept away by quakes, tsunami, fires or volcanic eruptions. But there are limits on the amounts payable: ¥50 million for housing and ¥10 million for furniture, electronics and appliances.
What earthquake insurance does not pay for is factories, office buildings, individual items worth more than ¥300,000, lost cash, financial instruments and savings or automobiles.
If most parts of a home are destroyed, the insurance pays 100 percent of the premium value. If half is damaged, the payout is 50 percent. If losses are less than that, only 5 percent is paid.
Can foreign nationals buy earthquake insurance?
Yes, anyone who owns housing in Japan can buy coverage. But those seeking quake insurance must buy fire insurance first. Only people covered for fire can buy quake insurance.
Quake coverage is limited to 30 percent to 50 percent of that provided by the contractor's fire insurance.
For those who need English information on earthquake insurance, the nonprofit organization Non-Life Insurance Rating Organization of Japan explains about insurance products online at www.nliro.or.jp/english/earthquake.html.
Quake insurance policies, which are sold by nonlife insurance companies, are all the same because how they work is regulated by law. But the premiums vary depending on prefecture and type of housing.
The premiums are calculated by the organization based on a given prefecture's earthquake risk, policyholder numbers and potential damage estimates.
The riskiest areas are Tokyo and Kanagawa and Shizuoka prefectures, which face a high probability of a strong quake striking in the Tokyo metropolitan area or the Tokai region.
Areas with the lowest rates include Fukushima and other prefectures in the Tohoku region caught up in the March 11 quake, as well as many areas in Kyushu and the Chugoku region.
But it's possible that premiums in Fukushima and other areas in the region will rise in the near future because they are reviewed annually, said Akinori Hikawa, a spokesman for the General Insurance Association of Japan.
Premiums for wooden structures are higher than those made of concrete and steel.
How much have insurers paid out in claims since the March 11 quake?
As of May 26, the total payouts stood at ¥847.01 billion and settled claims numbered 440,612 according to the General Insurance Association of Japan.
Miyagi Prefecture saw the largest number of payments at 155,322, with the second-largest in Ibaraki Prefecture at 68,010.
These already surpassed the ¥78.3 billion paid in the Great Hanshin Earthquake that struck Hyogo Prefecture in 1995.
To speed up inspection of damaged houses, the association has been using aerial and satellite photographs, which have allowed insurance companies to enhance their damage assessment capabilities.
Areas or city blocks where investigations based on aerial and satellite images have identified damage as catastrophic will be categorized as "total loss areas," or totaled, and be automatically considered destroyed.
In places struck by liquefaction, such as Urayasu, Chiba Prefecture, and other areas, houses found to have sunk by a meter, wooden houses found leaning at about 3 degrees or more and nonwooden houses tilting by at least 1.2 degrees will also be defined as totaled.
How many households have earthquake insurance?
Twenty-three percent of the nation's households had quake insurance as of fiscal 2009.
Hikawa said that has been rising since the Hanshin quake in 1995, but the current ratio is still seen as low, considering that most people with homes or condos buy fire insurance. No insurer discloses policyholder numbers.
People have been paying more attention to the issue since the Great East Japan Earthquake, with inquiries roughly doubling since March, he said.
Is it possible that some insurers will be bankrupted by the huge payouts?
This is unlikely to happen. When the earthquake insurance system was created in 1966, following a large earthquake in Niigata Prefecture in 1964, it was designed so no particular insurer would have to shoulder a catastrophic financial burden even if a major temblor were to rock part of the country.
To hedge the potentially large risk, earthquake insurance for all nonlife insurers is first purchased by the country's only earthquake reinsurer, Japan Earthquake Reinsurance.
To reduce financial risk further, the insurance money is divided roughly into three portions, which are each transferred to three entities — the reinsurer, the government and nonlife insurers. Each is responsible for pooling the money and investing it in low-risk financial instruments, according to the reinsurer's website.
According to the General Insurance Association of Japan, there is enough quake insurance assets nationwide to cover ¥5.5 trillion in damage, which could cover a disaster in Tokyo.
Nonlife insurers have so far paid claims worth about ¥750 billion since March 11.
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