Earthquake Coverage in Japan, Part II: Residential, Commercial, Industrial and Earthquake Fire Expense Insurance
The other source of residential earthquake insurance is through a limited number of cooperative insurers. As opposed to residential earthquake insurance under the government’s program, cooperative earthquake insurance is entirely run and managed by each individual cooperative insurer that writes the class, with no governmental support. The original policy terms tend to be somewhat similar in basic design to those of the government’s program backed policies, but reinsurance arrangements are entirely at the discretion of the individual cooperatives. Almost all the cooperatives writing this class purchase non-proportional reinsurance from the international reinsurance market and, in certain cases, also access the capital markets for protection via catastrophe bond issuance.
In the cooperative sector, Zenkyoren, the agricultural mutual, is by far the largest. The number of policies Zenkyoren had in force in 2014 was 10,529 million (1), which is 64 percent of the size of the Japan Earthquake Reinsurance Company, Ltd. (JER) in terms of number of policies. The next largest cooperative is Zenrosai, which had 2.1 million natural peril policies in force in 2014 (2).
Commercial and Industrial Earthquake Coverage
For all commercial and industrial risks, earthquake insurance is only available from commercial non-life insurance companies. The policy terms, including original rates, are set by the individual insurance companies or determined following negotiations between the insured and the insurer(s). Because of the high loss potential, insurance companies strictly control their earthquake aggregate exposure by sub limiting the potential payments. It is not unusual for these sublimits to be less than 5 percent of the fire sum insured for very large corporate insureds holding a large amount of property across Japan. Also, non-life insurance companies typically provide only very limited coverage for business interruption.
Earthquake Fire Expense Insurance (EFEI)
Earthquake Fire Expense Insurance (EFEI) is an expense insurance coverage specific to Japan that is designed to pay additional expenses caused by fire following an earthquake. For non-life insurers, EFEI is included as a standard feature in their normal fire insurance policies, for both residential and non-residential insureds. EFEI does not fall under the government’s JER program.
1. Source: http://www.ja-kyosai.or.jp/ebook/2015annual/index.html#page=15
2. Source: https://www.zenrosai.coop/english/