Reflecting on Tohoku

Five years after the Great East Japan Earthquake, Steve Arora, Head of Swiss Re Japan and Atsuhiro Dodo, Head of P&C Client Markets Japan, reflect on both the human and insurance costs of the tragedy.

The 2011 Tohoku Earthquake took us all by surprise. We were shocked when we saw the incredible devastation, massive loss of lives and homes, and widespread destruction of property. But we also witnessed the true spirit of Japan. "We offer our respect to all the Japanese people who have extended a helping hand in the last five years. Because of their efforts, thousands of people have been able to take great steps towards regaining their livelihoods and rebuilding the vibrant atmosphere of their communities," said Steve.

The fifth anniversary reminds us what our industry can bring to communities in distress. "As an industry leader, Swiss Re feels strongly about the value we can offer to our clients in helping to build a more resilient society," notes Steve.

Closing the underinsurance gap

Risk awareness has increased after the disaster. Property insurance premiums in Japan returned to a strong growth of 6% per annum for the years between FY2010/11 and FY2014/15. The penetration rate of property insurance rose to 0.31% of GDP in FY2014/15 from 0.26% in FY2010/11. 

Although the penetration rate has increased, property risk remains very much under-insured. In our recent study, Japan has the biggest estimated property protection gap in the world – USD 41 billion – of which 47% is earthquake-related. The overall property protection gap is more than double the property insurance premiums that were written by local non-life insurers in FY2014/15.

"Closing the property underinsurance gap is becoming a crucial challenge for society as the current situation is not sustainable over the long term," Atsuhiro notes. "Collaboration among all key stakeholders is crucial in order to implement a solution."

Committed to Japan

Amidst the tragedy and loss from Tohoku, Swiss Re was able to continue providing an uninterrupted service to clients, with our core team remaining on the ground.

"Even after all these years, our commitment to Japan remains as strong as ever," Steve says. "We continue to place clients and society at the heart of our strategy – helping to support life, rebuild and strengthen communities and enable progress. At Swiss Re, we believe that the strength of our clients, combined with our long-term commitment, makes a more resilient Japan," adds Steve.

Lessons for insurance

From an insurance perspective, a large nat cat event such as Tohoku provides opportunities to calibrate loss modelling. "The severity and magnitude of the earthquake surprised many scientists and the risk modelling community," says Atsuhiro, "as did the tsunami, liquefaction and consequential aftershocks."

Swiss Re has adjusted its internal risk modelling in response – for example, tweaking the occurrence frequency of earthquake events. In addition, says Atsuhiro, "we’ve developed and incorporated simulated tsunami models into our underwriting considerations."

Another challenge involves closing the underinsurance gap. "To do this will require coordinated effort and innovative thinking in two areas," comments Atsuhiro. "Firstly, we need to increase risk awareness culture in society. We must develop the necessary data and analytical tools for the measurement and modelling of evolving risks – both for natural catastrophes, and for risks that are harder to quantify, such as terrorism, cyber, and supply chain risks."

"Secondly, we must enhance our insurance value proposition. Consumers will buy insurance if they can make informed decisions about potential future impacts. The re/insurance sector must therefore do more to promote risk mitigation and support sustainable price, capacity, efficiency and innovation."

A continued dialogue

According to Steve, Swiss Re will ultimately need to work in partnership with our clients and the government to find solutions to help close this gap. 

"We want to be a part of Japan’s future," says Steve. "We want to play a role in building a world in which everyone can live well, and live securely. We invite you, all our clients and partners, to continue the dialogue with us to help our community, our industry, adapt better to a complex, and changing world. We can be smarter together to find solutions that will make this world more resilient. You have our full commitment to serving you and this market for the long term."

Published 16 March, 2016