Tag Archives: Japan Earthquake

Japan Earthquake and Tsunami and Marine Debris

March 11, 2012Â  will mark the one-year anniversary of the Japan earthquake and tsunami. Together the quake and tsunami caused $210 billion in economic damage, an estimated $35 to $40 billion in insured losses, and 15,840 fatalities, according to Munich Re.

While the disaster hit Japan, its aftermath was felt well beyond that country’s borders. Concerns were raised worldwide over supply chain disruption, nuclear risks and tsunami damage.

Another ongoing issue of concern beyond Japan’s shores is marine debris.

According to NOAA, it’s possible that debris washed into the sea by the tsunami could arrive on shores in Alaska, Hawaii, the West Coast, and Canada over the next few years.

Over at the Marine Debris blog, a post by Nancy Wallace, Director of the NOAA Marine Debris Program, notes:

It is likely that beachgoers on the West Coast and Alaska will start noticing a gradual increase in marine debris items near-shore or on the beaches in 2013. Those on the main Hawaiian Islands might start noticing an increase closer to 2014.†

Despite the alarming news headlines, NOAA’s Wallace assures us there is no scientific estimate of how much debris the tsunami washed into the sea or how much is still floating. It is also highly unlikely any debris is radioactive, while the chance of human remains arriving with it is almost zero.

You can find out more about the Japan tsunami marine debris on the NOAA Marine Debris Program site. Resources include the informative tsunami debris FAQs and fact sheet.

There’s also a marine debris tracker app that allows you to check in when you find trash on U.S. coastlines and waterways. Significant marine debris sightings can also be reported to NOAA via email at DisasterDebris@noaa.gov

A HuffPost piece offers further analysis on the tsunami marine debris story.

Sigma: 2011 Cat Losses Second Only to 2005

Catastrophes cost the global insurance industry an estimated $70 billion in insured losses in the first half of 2011, more than double the $29 billion in the first half of 2010, according to Swiss Re sigma.

This means 2011 ranks already as the second costliest year for insured catastrophe losses in history, behind 2005 when total catastrophe claims amounted to $120 billion of which $90 billion was caused by hurricanes Katrina, Wilma and Rita, sigma says.

In the words of Thomas Hess, Swiss Re’s chief economist:

Additional claims from the ongoing U.S. hurricane season or expensive winter storms in Europe have the potential to bring figures for the full year even closer to the record claims of $120 billion experienced in 2005.†

Based on first half events, 2011 will be the year with the highest insured earthquake losses in history, sigma says. Approximately 26,000 people lost their lives in catastrophes in the first six months of 2011, most of them in the Japan earthquake and tsunami.

Claims from natural catastrophes alone reached $67 billion in the first half of 2011, compared to $27 billion in the same period of 2010, according to sigma.

Total economic losses (insured and uninsured) for the first half year’s disasters amounted to almost $278 billion.

Swiss Re’s figures are in line with Munich Re’s latest catastrophe loss estimates. Check out I.I.I. facts and stats on global catastrophes for more on this.

Covering the links broken in Japan’s supply chain

Estimates of the insured loss from the Japanese earthquake and tsunami continue to roll in. They range from $12 billion (Eqecat’s low estimate) to $60 billion (London insurance analyst Barrie Cornes). Mainichi (Japan) Daily News gives a roundup.

But one of the big unknowns for insurers is what the total loss will be from various types of business interruption coverage. As I.I.I. explains, “Business interruption insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire.”

That sounds simple, but it can be an enormous portion of claims after a disaster. Business interruption constituted about a third of all losses from the 9/11 terrorist attacks. Eqecat, a catastrophe modeling firm, estimated that business interruption losses would be about 20% of its Japan estimate, as the coverage is less common in Japan than in the United States.

Another type of coverage, contingent business interruption, presents a trickier wrinkle. Contingent business interruption reimburses lost profits and extra expenses when the premises of a customer or supplier suffers an interruption of business.

So a business with contingent business interruption coverage might have a claim if it depends on a Japanese supplier whose operation is shut down. And if the business has to turn to a new, more expensive supplier, the extra cost might be covered under extra expenses coverage.

A web page produced by the International Risk Management Institute (IRMI) explains details, such as:

  • Insureds can get protection against a set list of suppliers or purchase blanket coverage protecting any supplier’s shutdown.
  • The claim must be of a type that would be covered under the insured’s own policy.
  • Usually there is a time deductible (48 or 72 hours, for example). That period must expire before an insured can receive reimbursement.

The coverage is designed to protect against a prolonged interruption of the supply chain. For example, last week the Wall Street Journal reported that ON Semiconductor, out of Phoenix, Ariz, is working with insurers regarding coverage under business interruption and “supply chain disruption.”

It’s quite difficult to know how much the contingent business interruption claims will total, since a contingent business interruption claim could be filed by a company anywhere in the world. For that reason, catastrophe modelers like Eqecat don’t include contingent business interruption claims in their estimates.

Some in the industry indicate that the losses won’t be a big part of the losses from the Japan disasters. One insurance coverage attorney told the Journal that a business that itself lacks earthquake insurance might not be able to claim on its contingent business interruption. Remember, a company can only claim for a loss that would have been covered had its own property sustained it. An expert with the brokerage Aon Benfield said the claims aren’t something that “moves the needle in the insurance industry.”

And the New York Times notes that Japan’s importance in some industries, like semiconductor manufacturing, has waned in recent years as countries like South Korea, Taiwan, and China have gained market share.

I.I.I. continues to update its web page covering the Japan disasters.

Millions saved in Japan by good engineering and government building codes

As the devastation in Japan achingly unfolds, it’s easy to learn about the thousands of deaths, the piles of debris, the washed-away homes and think, “Nothing could be worse.”

But that’s not the case.

Of course, the toll is both enormous and tragic. Thousands are dead. Economists estimate the economic losses between $50 billion and $150 billion. (Insurance losses will be less, since not everything that gets damaged is insured.)

It could have been so much worse. The building codes and warning programs in place saved thousands of people and billions of dollars.

Japan enjoys some of the world’s strongest building codes to minimize the earthquake threat and has continued to strengthen them after each event.   The New York Times examined the issue shortly after the earthquake:

In Japan, where earthquakes are far more common than they are in the United States, the building codes have long been much more stringent on specific matters like how much a building may sway during a quake.

After the Kobe earthquake in 1995, which killed about 6,000 people and injured 26,000, Japan also put enormous resources into new research on protecting structures, as well as retrofitting the country’s older and more vulnerable structures. Japan has spent billions of dollars developing the most advanced technology against earthquakes and tsunamis.

Japan has gone much further than the United States in outfitting new buildings with advanced devices called base isolation pads and energy dissipation units to dampen the ground’s shaking during an earthquake.

The isolation devices are essentially giant rubber-and-steel pads that are installed at the very bottom of the excavation for a building, which then simply sits on top of the pads. The dissipation units are built into a building’s structural skeleton. They are hydraulic cylinders that elongate and contract as the building sways, sapping the motion of energy.

The Times article, written last week, also emphasized tsunami protections like regular training drills and sea walls. The swamping of Sendai makes it unclear how well those worked, but in some cases, the tsunami moved so rapidly, people had little chance to escape.

In some towns, the first waves struck within a half-hour of the earthquake, as this Wikipedia entry documents. And one standard piece of advice – get above the wave – didn’t work in towns where the high point was a building that washed away.

But the building codes seem to have done their job in the face of the largest earthquake in Japan’s long history. Although the damage is extensive, it is a far cry from the destruction last year in Haiti, where poor construction increased the death toll. The country also fared better than China did after the Sichuan earthquake in 2008. There, building codes were strong, but enforcement was lax.

Even with the post-Kobe improvements, there will be a lot of lessons coming from this month’s earthquakes, including how to protect nuclear reactors from the twin threats of earthquake and tsunami.

In the United States, the insurance industry makes sure building codes are enforced through the Building Codes Effectiveness Grading System, a job performed by the Insurance Services Office. The system got its start after Hurricane Andrew in 1992, when it became clear that Miami’s vaunted hurricane codes were spottily enforced. Buildings in highly rated areas are eligible for insurance discounts.

Meanwhile, Reuters notes that in California, newer buildings can withstand mighty quakes, but if one happens, “the surviving buildings will tower over a carpet of rubble from older structures that have collapsed.” The issue, according to Reuters: California has been lax in retrofitting older buildings.

Retrofitting was also an issue in the recent New Zealand earthquake. Recall most of the startling images – the steeple toppled from Christchurch Cathedral, for example – were older buildings in need of retrofit. In 2004, New Zealand authorities required old buildings to have one-third of the resilience of newer ones, but gave the requirement 20 years to take effect, the Wall Street Journal reported early this month.

I.I.I. continues to update its web page covering the Japan quake.

In Japan, the public bears most of the risk of earthquakes

The devastation unfolding in Japan will likely generate the largest insured losses for any earthquake, but by far the biggest part of the tab will fall on the Japanese people.

Less than half of residences in the country carry earthquake insurance, according to the 2010 Annual Report of the Japan Earthquake Reinsurance Co. (A pdf in English is available here.)Â   The company, usually called the JER, protects all residences that purchase earthquake insurance.

The standard dwelling policy in Japan does not cover earthquake, but customers can choose to add the coverage. But earthquake insurance covers only up to half the losses that a standard residential policy does.

So a home that is covered for fire losses of, say,  ¥20 million (US$245,000), only has  ¥10 million (US$122,000) cover for earthquake. (Earthquake cover includes tsunami and fires caused by the earthquake.) Personal property coverage is similarly pro-rated.

Claimants recover 5%, 50% or 100% of the earthquake limit, depending on whether the loss is considered a partial loss, a half loss or a total loss. Early reports showed partial losses far outnumbering the other types, but claims are continuing to come in.

Japanese companies offer earthquake cover, but the premium – determined by zone by the Non-Life Insurance Rating Organization of Japan – is routed to the JER. To protect itself, the JER purchases its own reinsurance. JER’s main reinsurer is the Japanese government, but private reinsurers are also involved.

The highest payout the JER contemplates is  ¥5.5 trillion, or $67 billion. That’s well above early estimates of the insured loss, which top out at $35 billion, according to the cat modeling firm of AIR. AIR’s estimate excludes tsunami losses but includes losses to commercial buildings, which are not reinsured by the JER.

Should the maximum loss occur, JER is responsible for the first $1.4 billion. Of the next $65 billion, the Japanese government, would pay around 80%, with private insurers and the JER roughly splitting the rest.

If the loss exceeds JER’s  ¥5.5 trillion limit, the company could pro-rate its payments downward.

I.I.I. is continually updating its web page devoted to the disaster.

Earthquake strikes Japan, triggers tsunami

The tragic earthquake and tsunami that hit Japan earlier today have unleashed a rapidly unfolding catastrophe, as the tsunami crosses the Pacific and as casualty and damage reports mount. The basics, via the U.S. Geological Survey, which monitors earthquake activity worldwide:

  • Magnitude: 8.9 – the largest earthquake since the Chilean earthquake last year, which registered 8.8. Last month’s quake in New Zealand registered 6.3.
  • Date/time: Friday, March 11 at 2:46 p.m. local time. (12:46 a.m. Eastern Standard Time)
  • Depth: 15.2 miles. Shallower earthquakes cause more damage. Last year’s Chilean quake was 22 miles down. The New Zealand quake was   shallow, just 3 miles underground.
  • Location: 38.322Â °N 142.369Â °E – 80 miles east of Sendai, Japan and 231 miles northeast of Tokyo.

I.I.I. has assembled a presentation and a web page on the earthquake and its potential impact on the insurance market. I.I.I. has more information on earthquakes and tsunamis here.