Q: Are residents who were relocated to different locations per business continuity plans back at their offices or homes?

Atkinson: Our employees are in a modern downtown Tokyo building, built to earthquake codes which are regularly updated, so it wasn't an issue for us. A lot of the newer 50-story towers shook, which was intense. People got under desks and held on to whatever they could, but most of it was over within minutes or less.

Hyokawa: In the stricken area, Japanese staffers and residents did not evacuate. They remained to rebuild their houses when possible. I think the staffers and residents evacuated for business continuity are foreigners or Japanese working for foreign companies. They were back to offices and homes around by the middle of April. By that time, concerns about the Fukushima nuclear power station had calmed down and day-to-day life was back to normal.

Q: What sort of earthquake-resistant building standards are mandatory, and do you think the March quake will result in fine tuning these requirements?

Hyokawa: After experiencing large earthquakes in Niigata (1964), Tokachi (1968) and Miyagi (1978), the government substantially revised the Architectural Standard Law in 1981, incorporating the regulation of earthquake-proof structural standards. The standard was mandatory and the Kobe quake of 1995 showed the efficiency of the revised law. The buildings constructed after 1981 were much less damaged than buildings constructed before 1981. The law was revised again in 1995 for reinforcement of buildings built before 1981.

The 1981 law was designed to withstand quakes with a magnitude of 6, a scale of earthquake that is expected to happen once every 100 years.

Most of structures in the March 11 disaster were not affected by shocks from that event but by aftershocks. The largest one, an M7 on the Richter scale, happened on April 7. Buildings partly damaged by 3/11 were not repaired yet but were not destroyed. This attests to the effectiveness of the earthquake–resistant building standards of 1981 and 1995.

June 27 photo of left side of Kitakami River in Ishinomaki City (photo by Kyoritsu Risk Management).

Q: Roughly what percentage of businesses damaged in the quake carried insufficient or no insurance?

Atkinson: Most businesses in Japan don't buy earthquake protection. The cost is quite high and many businesses don't know it's available because a lot of domestic insurance companies don't want to sell it. Foreign companies are more active because it's a differentiator for them to break into the commercial insurance market. The economic loss is for that region is $300 billion, and insured loss between $20 and $45 billion; 90 percent of businesses in the region did not have insurance, which is typical for the region; I would be surprised if even in Tokyo more than 20 percent of businesses carry it. However, demand is changing since the quake. Even though rates are going up from 20 to 50 percent or higher, people are keeping the coverage, restructuring with higher deductibles or changing exposures.

Hyokawa: Earthquake insurance on houses and personal effects is available only for policyholders of personal property insurance. Around 40 percent of the property insurance policyholders purchase earthquake insurance, equivalent to 23 percent of total families in Japan.

The percentage of commercial property policies with quake coverage is much lower than personal lines. However, almost all foreign companies doing business in Japan purchase earthquake coverage. The problem is insurers' limited capacity to write earthquake risks. Japanese insurers' limit of liability and premium rate for earthquake are totally controlled by overseas reinsurance market.

For example, for a Tokyo office building owned by foreign investment funds, the pre-quake premium level was:

Limit for A/R: JPY 10,000,000,000 (Property replacement value)

Premium for A/R: JPY 2,200,000

Sub limit for EQ: JPY 1,000,000,000 (10% of property replacement value)

Premium for EQ: JPY 7,600,000.

Because of the cost, even large companies like Toyota, Honda or Panasonic do not insure earthquake risk. Instead, they reserve funds for earthquake. Kobe Steel suffered heavy losses from the March quake, but restored damages by spending their internal reserves because they do not insure earthquake risk.

Q: Are you experiencing any problems with insurers regarding claims denials or speed of processing that might be holding up the building process?

Atkinson: This hasn't been an issue for us; most of the losses we've dealt with have been no dispute in terms of loss. Earthquake coverage is a separate endorsement in Japan, while in the West it's normally covered under the fire policy. If you have an endorsement, there's a claim; if you don't, there's not. Some investigations are still going on regarding business interruption because it can be difficult to prove what the earthquake's portion of the loss damages is, but in terms of denials, I haven't seen anything.

Hyokawa: All of the insurers have been doing their best to settle claims quickly. The Financial Ministry of Japan disclosed its research about the status of payment of earthquake claims as of the beginning of July:

(JPY million)

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