Japan earthquake insurance gap at $25b: report

There is still underinsurance of seismic risk even if the share has risen.

Japan’s earthquake insurance gap stands at $25b, the second largest in the world even with the magnanimity of the 2011 great earthquake, according to a Swiss Re study.

Most of the gap came from underinsurance of seismic risk. Insurance penetration for seismic risks in Japan remains low even if the share has risen. Majority of firms still lack protection, the report said.

With respect to households, an estimated 50% to 60% have earthquake insurance but with coverage limits in residential policies ranging from 20%-50% of fire sum insured, the share of overall losses compensated for is around 15%.

Insurance claims covered $35b of the losses resulting from the great earthquake and tsunami, but the compensation only covered 16% of losses.

Following the disaster, insurance industry modelling of secondary perils like tsunami and the loss potential of buildings' non-structural elements has progressed, Swiss Re noted.

As modelling of all loss drivers improves and mitigation of worst-case scenarios is strengthened, the industry will be able to contribute more to offload earthquake risk from businesses and households, it added.