The 21 November M-7.3 quake off Fukushima in eastern Japan has brought the spotlight on the country’s low earthquake insurance penetration.
Only 10% of Japanese companies, and about 30% of the total appraisal value of real estate in the country, reportedly have earthquake insurance policies despite Japan being one of the most seismically active countries in the world, said Nikkei Asian Review.
Swiss Re estimates that the Japan’s uninsured natural disaster loss amounts to US$27.9 billion a year. That equates to a 0.63% share of GDP - the second highest of a major country.
Less selling, less buying
The reasons for the low take-up of earthquake insurance are found in both insurers and policyholders.
After years of deflation, Japan’s nonlife insurers, reluctant to drastically change premiums for corporate clients, are trying to curb the number of contracts they offer. Many market insiders point out the difference they have with foreign insurers, who focus more on the balance between risk and premiums.
Some analysts argue insurers would do better focusing on profitable insurance products, such as directors’ and officers’ liability insurance or cyber insurance, rather than selling unprofitable earthquake policies.
On the customer side, Japanese companies are more likely than their foreign peers to shun earthquake insurance. A reason is that quake premiums are much more costly than fire insurance premiums.
Furthermore, Japanese insurers are seen as monopolising policy contracts through cross-shareholdings. These networks have made it difficult for foreign insurers to enter the market and are holding agents back from improving their ability to make proposals.
Several Japanese companies also hold large amounts of cash as contingency for disasters. Many businesses do not have risk managers.