Earthquake insurance uptake grows significantly in Taiwan

25 years after the Chi-Chi earthquake, TREIF has increased its event funding to $

Taiwan Residential Earthquake Insurance Fund (TREIF) paid up to $45,000 (TW$1.5m) for a total loss of a residence during the 1999 Chi-Chi earthquake, with an additional $6,000 (TW$200,000) for living expenses. The annual premium is $40.50 (TW$1,350), according to Guy Carpenter.

Reinsurance plays a key role in TREIF’s risk management, and since its inception, the fund has not experienced any reinsurance losses. TREIF has also tapped the capital markets, issuing a $100m catastrophe bond in 2003.

Following the Chi-Chi Earthquake, Taiwan's insurers have shifted to more robust catastrophe excess of loss (XoL) programs, enhancing their reinsurance protection schemes. 

This approach offers better coverage for large-scale losses and ensures continuity amidst natural disasters. Insurers have increasingly adopted catastrophe modelling to better assess their earthquake exposures, refining these models to suit their specific portfolios. 

These models aid in managing exposure and determining appropriate retention and limits for catastrophe XoL programs, contributing to financial stability in Taiwan’s earthquake insurance market.

The TREIF programme, established in 2002, covers damages from fires, explosions, landslides, and other seismic activities. It offers coverage bundled with residential fire policies and is sold through private insurers. 

Total loss is determined when repair costs equal or exceed 50% of the replacement value, and the home is deemed uninhabitable. Most of the fund's exposures come from homes with mortgages, as banks typically require bundled fire and earthquake insurance.

Prior to the 1999 earthquake, only 1% of households had earthquake coverage. By the end of 2023, this figure had risen to 37.85%, covering 3.5m households.

To accommodate growing demand, TREIF has increased its event funding from $1.5b (TW$50b) in 2002 to $3.6b (TW$120b) by April 2024. If an event loss exceeds $3.6b (TW$120b), reimbursements will be distributed on a pro-rata basis.

($1.00 = TW$32.02)