Verisk Estimates Industry Insured Losses for the Noto Peninsula Earthquake to Range from JPY 260 Billion to JPY 480 Billion (USD 1.8 Billion to 3.3 Billion)
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From a risk management perspective, the estimated insured losses due to the Noto Peninsula earthquake present a significant financial impact on the insurance industry. Insurers and reinsurers with exposure to Japanese property risks will need to assess their portfolios for potential claims and adjust their capital reserves accordingly. The range of JPY 260 billion to JPY 480 billion indicates a considerable variance, suggesting uncertainty in the final claim amounts. This could affect the stability of smaller insurers and may lead to increased premiums for property insurance in the affected regions.
Furthermore, the earthquake highlights the need for robust catastrophe modeling and risk assessment tools. Companies like Verisk play a crucial role in providing these analytics. Insurers rely on this data to price their products accurately and manage their risk exposure. The event underscores the importance of such models in predicting potential losses and preparing for such extreme events. Companies may need to re-evaluate their current models to incorporate the potential for similar events in less seismically active regions like the Noto Peninsula.
Analyzing the insurance market implications, the projected loss figures are a testament to Japan's stringent building codes, which likely mitigated greater losses. Despite this, the financial impact is substantial and could lead to market consolidation, as smaller or less diversified insurers may struggle to absorb the losses. The exclusion of various losses from Verisk's estimates, such as business interruption and infrastructure, suggests that the total economic impact will be much higher, potentially affecting insurers' future underwriting decisions.
Investors in insurance-linked securities (ILS) and catastrophe bonds should monitor the situation closely, as these instruments might be triggered by the event. The loss estimates could also influence the pricing and availability of reinsurance in the next renewal cycles, potentially leading to tighter terms and conditions. The earthquake's impact may also prompt a re-examination of insurance penetration rates in Japan, particularly for earthquake coverage and could lead to a push for more comprehensive policies that include business interruption and infrastructure.
Examining the construction sector, the earthquake's aftermath may stimulate demand for construction services, materials and labor in the rebuilding process. This demand surge could lead to a temporary increase in costs and benefit local construction firms. However, it may also strain supply chains, especially if global material prices are already high or if there are logistical challenges. Japanese construction companies that specialize in earthquake-resistant designs could see an uptick in demand, not just domestically but potentially from other earthquake-prone regions seeking to improve their resilience.
The disaster may also prompt a review of building codes and standards, even in a country with already stringent regulations. This could have a long-term impact on the construction industry, potentially leading to increased costs for new buildings but also offering opportunities for innovation in earthquake-resistant technologies and materials.
BOSTON, Jan. 08, 2024 (GLOBE NEWSWIRE) -- The Extreme Event Solutions business unit of Verisk (Nasdaq: VRSK), a leading global data analytics and technology provider, estimates that insured losses to properties from the January 1 M7.5 (per the United States Geological Survey) earthquake that struck near the Noto peninsula in Ishikawa prefecture, Japan, will be between JPY 260 billion (USD 1.8 billion) and JPY 480 billion (USD 3.3 billion).
Event Summary
Per the United States Geological Survey (USGS), the January 1, 2024, M7.5 earthquake on the west coast of Japan occurred due to shallow reverse faulting in the Earth’s crust. Japan is a seismically active region with most earthquakes occurring off the east coast, where the Pacific plate subducts beneath Japan. This earthquake occurred on the west coast of Japan, where crustal deformation created by the broader plate motions is accommodated in shallow faults.
According to Verisk, shallow earthquakes cause more damage than intermediate- and deep-focus ones since the energy generated by shallow events is released closer to the surface and therefore produces stronger shaking relative to earthquakes located deeper within the Earth. This coastal earthquake produced strong shaking on land and generated a tsunami.
The USGS has also noted that while earthquakes are common in Japan, the region surrounding the Noto Peninsula earthquake sees lower rates of seismicity as compared to the major subduction zone along its east coast. Still, since 1900, 30 other M6 and larger earthquakes have occurred within 250 km of the January 1 event.
Hazard and Damage Observations
The Noto Peninsula earthquake caused damage across an extensive area around and south of the epicenter. While most of heavy damage occurred in Ishikawa prefecture and in particular Wajima city including a large fire, damage from ground shaking and liquefaction was observed in other prefectures such as Niigata and Toyama. Tsunami waves of over one meter inundated many buildings along the shore, especially in Wajima, Suzu, and Noto.
Building codes in Japan are among the most advanced in the world and have been adopted and practiced well since 1981. In the areas impacted by 2024 Noto Peninsula earthquake, seismic code requirements are higher than those in the southern part of Japan.
Verisk’s modeled insured loss estimates do not consider:
- Losses to uninsured properties
- Losses to land
- Losses to infrastructure
- Losses to automobiles
- Business interruption losses, both direct and indirect
- Workers’ compensation losses
- Losses to civil engineering (railway) risks, marine cargo and marine hull risks, aviation risks
- Risks, Transit warehouse risks, movable all risk, and personal accident risks
- Loss adjustment expenses
- Losses from non-modeled perils, such as landslide
- Demand surge: the increase in costs of materials, services, and labor due to increased demand following a catastrophic event
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About Verisk
Verisk (Nasdaq: VRSK) is a leading strategic data analytics and technology partner to the global insurance industry. It empowers clients to strengthen operating efficiency, improve underwriting and claims outcomes, combat fraud and make informed decisions about global risks, including climate change, extreme events, ESG and political issues. Through advanced data analytics, software, scientific research and deep industry knowledge, Verisk helps build global resilience for individuals, communities and businesses. With teams across more than 20 countries, Verisk consistently earns certification by Great Place to Work and fosters an inclusive culture where all team members feel they belong. For more, visit Verisk.com and the Verisk Newsroom.
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