Earthquake insurance premiums set to rise by as much as 30%

From July 2014, earthquake insurance premiums are set to rise by an average of 15.5% across Japan, with some areas seeing a price hike of as much as 30%.

The reason for the increase is due to expectations of another major earthquake that could affect the country in the future. Following the 2011 Tohoku disaster, insurers were left with nearly 1.2 trillion Yen  in claims. This has severely drained the reserve fund. 

Insurance premiums vary depending on the assumed earthquake risk in each prefecture. Areas at risk of inundation by a tsunami, including Osaka, Tokushima, Ehime, Kochi and Kagoshima will see premiums rise by 30%. Even inland areas with no risk of tsunami, such as Saitama, Tochigi and Gunma will see a 30% increase as they have a high risk of damage due to earthquake vibration. Meanwhile, other areas such as Yamanashi, Nagano, Shiga, Okayama and Hiroshima may see premiums stay the same or even decrease.

Premiums will also vary depending on the type of building. Premiums on non-wood frame buildings (eg. steel frame or concrete) are typically 40 ~ 60% of what you would pay on a wood-frame building. However, the average price rise on non-wood buildings is expected to be around 20%, while the average price rise on wood-frame buildings is 11%. Most wood-frame buildings, such as houses, are built in elevated areas with solid ground, while a growing number of apartments and high-rise buildings are being built on reclaimed land which tends to amplify the vibrations of an earthquake.

Examples of annual premiums for 10 million Yen coverage:

Non-wood frame (eg. apartments) Premium increase Areas
6,500 Yen 30% Iwate, Akita, Yamagata, Fukushima, Tochigi,
Gunma, Toyama, Ishikawa, Fukui, Tottori,
Shimane, Yamaguchi, Fukuoka, Saga, Nagasaki, Kumamoto, Kagoshima.
Nagano, Shiga, Okayama, Hiroshima.
8,400 Yen 29% Hokkaido, Aomori, Miyagi, Niigata, Gifu,
Kyoto, Hyogo, Nara, Kagawa, Oita,
Miyazaki, Okinawa.
-8% Yamanashi.
11,800 Yen 30% Ibaraki, Tokushima, Ehime, Kochi.
13,600 Yen 30% Saitama, Osaka.
20,200 Yen 20% Chiba, Tokyo, Kanagawa, Shizuoka, Aichi, Mie, Wakayama.

 

Wood-frame
(eg. homes)
Premium
increase
Areas
10,600 Yen 6% Iwate, Akita, Yamagata, Tochigi, Gunma,
Toyama, Ishikawa, Fukui, Tottori, Shimane,
Yamaguchi, Fukuoka, Saga, Nagasaki,
Kumamoto, Kagoshima.
-17% Nagano, Shiga, Okayama, Hiroshima.
13,000 Yen 30% Fukushima.
16,500 Yen 30% Hokkaido, Aomori, Miyagi, Niigata, Gifu,
Kyoto, Hyogo, Nara, Oita, Miyazaki, Okinawa.
6% Kagawa.
-12% Yamanashi.
24,400 Yen 30% Ibaraki, Saitama, Osaka, Ehime.
27,900 Yen 30% Tokushima, Kochi.
32,600 Yen 7% Chiba, Aichi, Mie, Wakayama.
4% Tokyo, Kanagawa, Shizuoka.

 

The higher premiums will be charged to those who take out new policies from July. They will also apply to anyone who renews their policy after this date.

Discounts may be available to those who take out long-term policies. The maximum term is five years. Discounts are also available for those who have purchased apartments in buildings built using high-grade earthquake resistant technologies, such as base-isolation.

The current increase in premiums does not reflect the increased risk of damage from a Nankai trough earthquake, so we could see premiums rise again in 2015.

Earthquake insurance was introduced in 1966 to cover against damage from fires caused by earthquakes, tsunamis and volcanic eruptions. The insurance payouts are shared between private insurers are the government. Earthquake insurance cannot be taken out on its own – it must be taken out along with fire insurance.    The maximum coverage on a house is 50 million Yen and 10 million Yen for contents.

Home owners need to be aware of the insurance payout limits. For example, earthquake insurance will only provide a payout of up to 50% of the value of the property. If your home is destroyed in an earthquake, you will need to continue paying your mortgage while also paying to rebuild your home. While earthquake insurance won’t provide 100% coverage, receiving a partial payment may be preferable to nothing at all.

If you are buying an apartment, you can only insure the inside of your apartment. The building’s management association are responsible for insuring the common areas, so it is essential that you confirm they have taken out fire and earthquake insurance before buying into a building.

In Chiba Prefecture, several apartment buildings suffered damage to their common areas. Before any major repairs can be carried out, however, 75% of apartment owners must agree to the work. Disagreement amongst owners has caused some repairs to be delayed while they argue about using the money from the building’s reserve fund. Had they been insured for earthquakes, however, the insurance payout could have covered the repairs and made it much easier for owners to reach agreement.

Recent surveys have estimated that only 30% of apartment buildings have earthquake insurance.

Source: The Yomiuri Shimbun, March 13, 2014.

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