Filed Under:Agent Broker, Commercial Business

Patchwork Progress: Brokers Discuss Japanese Earthquake Recovery

Five months after the earthquake and tsunami that devastated northeastern Japan, some areas are back to normal while others are characterized by temporary housing, piles of rubble and businesses that can't afford to rebuild, with many people still unaccounted for. With a population of 5.7 million, more than 20,000 people were killed and 500,000 suffered damage from the tsunami in the wake of the 9.0 magnitude earthquake.

We spoke with Paul Atkinson, managing director of the insurance division of Cornes & Co. Ltd., and Yoshiro (“J.R.”) Hyokawa, senior vice president of Kyoritsu Insurance Brokers of Japan Co. Ltd., both members of the Assurex Global network, about the state of recovery in earthquake-stricken Japan. 

 In this photo taken Saturday May 28, 2011, crows perch on the debris inside the obliterated town of Minamisanriku, Japan. Recovery from the March 11, 2011 tsunami is only inching along in the hardest-hit towns. Many survivors remain in limbo, gripped by deep fears and uncertainties that raise questions about Minamisanriku's future. (AP Photo/David Guttenfelder)

Q: What is the current status of rebuilding in the earthquake-stricken area? 

Atkinson: Depending on who you talk to, we’ve seen varying levels of success. With 25,000 people dead or missing, 120,000 homes and buildings destroyed, and an estimated $300 billion USD in damages, it’s the largest natural catastrophe ever, even topping Hurricane Katrina. Reconstruction is going to take some time; a lot of work has been done to clear up many parts of the region, and areas that were less devastated such as downtown cities are more or less back to normal. The tsunami-stricken area, however, still has a long way to go. 

Hyokawa: Miyagi, Iwate and Fukushima in the Tohoku region were the most heavily stricken areas. Teikoku Data Research reported that damages confirmed by the Police Office as at 14th July are: 





















Major highways and railroads in the interior recovered quickly in early April and were used to deliver emergency supplies of water, food and clothing. By the end of April, public utility services had also recovered. However, there have been problems in recovery.

The quantity of rubble from demolished buildings is 3 to 5 times more than the municipalities' annual disposal capacity. Through the efforts of the government and many volunteers, rubble in roads and towns was removed, but 60 percent to 70 percent has just been heaped in temporarily storage places. With the recent warm weather, this has produced a huge amount of flies and other vermin.

Housing for refugees is also an issue. In mid-July, the total number of refugees in the three prefectures was around 100,000. Although 64 percent has been moved to newly built temporary housing, more than 35,000 still remain in refugee camps, such as school gymnasiums without air conditioning or privacy. Most of the refugees are older people without cars who are afraid to live in temporary houses built in these isolated areas.

Cause of Death















Finally, radioactive contaminated areas 20 to 30 kilometers from the Fukushima Nuclear Power Station will be impossible to rebuild. Cattle and pets were left there to die.

Further, under the rubble, there are still corpses of missing persons killed by buildings that collapsed in the tsunami. By April 11, more than 13,000 bodies had been autopsied, according to government officials.   

In this photo taken Saturday, May 28, 2011, construction equipment is used to remove debris from the devastated town of Minamisanriku, Japan. Three months after the March 11 tsunami obliterated the town, signs of slow progress are visible in Minamisanriku. But even as physical recovery inches along, the town is gripped by deep fears and uncertainties that raise questions about its survival. (AP Photo/David Guttenfelder)

Q: Which businesses are rebuilding more quickly?

Hyokawa: In early August, the Ministry of Economy and Industry disclosed that 80 percent of manufacturing plants damaged by the quake had been restored to prequake levels by the end of June. In researching 20 major industries in the stricken area, the Sankei Business News found that 90 percent had recovered enough to operate, with their first priority being supply their customers.        

On the other hand, Teikoku Data Research surveyed 5,004 small to midsized companies with headquarters in the coast of three prefectures. Rebuilding status as of July 22 was as follows:


Rebuilt to operate (%)

No plan to rebuild (%)













In the coastal regions, the major industry is fishing related. Some ports were rebuilt but fishing boats, refrigerated warehouses and fish processing facilities have not been rebuilt. Coastal sea beds also are clogged with tons of rubble taken from demolished areas. It is economically and technically difficult to rebuild those facilities in the coastal regions.

A construction machine loads iron debris on a truck at a devastated area in Minamisanriku, Miyagi Prefecture, northeastern Japan, Saturday, April 23, 2011. (AP Photo/Hiro Komae):

Q: Have there been any problems getting equipment and material, or site surveys for claims?

Atkinson: Initially it was the same as Hurricane Katrina—the first tsunami took out so much of the region and infrastructure that assistance physically couldn’t get into the area. Then there was the subsequent nuclear scare and closing off areas because of the fear of radioactivity. It was difficult in first three to four weeks to get claims adjusters into the areas of worst damage so they couldn’t do loss inspections. It’s better now in most of the region, with the exception of the zone around the nuclear power plant that requires government approval to enter.

Hyokawa: One of the Japanese property-casualty insurers sent out 3,000 staffers from all over Japan to the three prefectures through the end of June. They were engaged in site surveys, responding to inquiries and filing claims from insureds.

By the end of April, according to the insurer, it was very difficult for staffers to visit the site because of damaged roads and lack of cars. The following record of homeowner claim settlements shows that by May, almost 80 percent of claims filed had been settled. 
















Settlement (%)






A woman walks by the rows of temporary housings for the March 11 earthquake and tsunami survivors at Hibiki Industrial Park in Higashimatsushima, Miyagi Prefecture, northeastern Japan, Tuesday, June 14, 2011. (AP Photo/Koji Sasahara)

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.    

 June 27 photo of Ishinomaki City, nearest to the earthquake epicenter. (Photo by Kyoritsu Risk Management)

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.  

June 27 photo of right side of Kitakami River in Ishinomaki City. Debris was cleared from roads but still remained in the town. Building with blue roof on left is a fish processing factory. (Photo by Kyoritsu Risk Management)

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)

Line of Insurance

Loss Estimate

Loss Paid

Paid Ratio

Life Insurance




Home Owners Property




Commercial Property




Note: Commercial property loss is net amount after reduced reinsurance.   

Q: Renewals were a problem after the quake. Does pricing still look high?

Hyokawa: Right after the event, insurers in Japan, including foreign insurers, announced:

  • They will not write any new business with earthquake for the moment.
  • They will not renew any policy in case there is any damage caused by the earthquake or tsunami.
  • They will review every renewal policy with earthquake cover.

Because the Japanese fiscal year ends at the end of March, we had to renew a lot of policies on April 1. We had started to get the renewal premium and submit it to an insured before 3/11. We faced the most difficult situation when insurers requested a premium increase for earthquake coverage they quoted already. After hard negotiation, we succeeded in renewing without a premium increase in cases where the location is not in the 3/11 earthquake zone and sustained no damage from the event.  

Currently, insurers are trying to open the door to writing earthquake coverage, but the capacity is limited and premium has increased 20 percent to 40 percent over last year's premiums. Further, it is predicted that large-scale earthquakes will next strike the southern Pacific coast of Japan.

Property rates in Japan, excluding earthquake and CGL, are still competitive. But influenced by the loss payment in 2011, reinsurers will increase the overall pricing in 2012.  

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