By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
The catastrophe modelers have been releasing loss estimates ever since the Tohoku earthquake struck near Honshu, Japan, on March 11, and now individual insurance companies are getting into act and announcing their estimated losses. But the true insured loss picture will be unclear for an indeterminate time, as insurance "boots" are unable to get on the ground.
Part of the problem is the potential radiation exposure from the damaged Fukushima Daiichi nuclear power plant.
"You can't send your employees in until you get an all-clear from a safety standpoint," said Job Hall, executive vice president at FM Global.
According to Hall, the Johnston, R.I.-based commercial property insurer has been unable to physically visit much of its clients' properties in the quake- and tsunami-ravaged area. He believes that many insurance companies are in the same spot.
"I think the key is unfortunately this thing is still developing and unfolding, and we're still trying to learn what everybody's got," Hall said of FM Global's clients.
By this time after an earthquake--10 days or more--insurers would normally have a good feel for what their losses will be, he said. Now, insurers know where their clients have facilities, but they are just left to speculate about whether they are full losses, partial losses or no loss at all.
Kit Miyamoto, co-chairman of catastrophe consultancy Global Risk Miyamoto, led one team that was able to travel up and down the ravaged coast of northeast Japan. He was fearful of radiation but received hourly reports from contacts at the Japanese nuclear authorities, who relayed what areas to stay away from. He returned home to California on Sunday, March 20.
While in Japan's quake zone, Miyamoto did not see very many private-sector people, including insurance representatives. Ports, airports and railways are shut down, and entrance to the entire area is restricted, if travelers can even find gas, he explained. Miyamoto moved around by helicopter.
Peter Yanev, long-time catastrophe insurance and earthquake expert and current co-founder of the eponymous risk consulting firm Yanev Associates, reminded us as well that insurers aren't sure yet about their losses in last month's Christchurch quake in New Zealand for the same reasons. The New Zealand government has prohibited access to the damaged central part of town for safety reasons, including for insurance and engineering people.
Still, despite the chaotic situation in Japan, some primary carriers and reinsurers announced loss estimates. Swiss Re announced on Monday, March 21, that it was expecting earthquake-related losses to cost $1.2 billion, and Chartis warned it would be on the hook for $700 million in connection with the quake.
The three big catastrophe modelers all have their estimates out as well. EQECAT estimated total insured losses of $12 billion to $25 billion. AIR Worldwide called for $15 billion to $35 billion in insured losses, with 20 percent of that being commercial. Risk Management Solutions forecasts $200 billion to $300 billion in total economic losses.
LOCAL BUSINESS CONTINUITY
One client that Miyamoto visited in Japan was a steel mill. When Miyamoto first entered the town where the plant is located, he was surprised to find power up and running. He then discovered that his client had its own independent power supply, which provided enough juice to continue manufacturing operations as well as to share excess power with the rest of town.
While visiting Sendai, Miyamoto came across a lone restaurant up and running, with a line out the door. He asked the owner how it was possible. The response: the owner was running on his own propane gas.
These two anecdotes illustrate for Miyamoto the importance of considering the localized effects of a disaster when a company conceives and implements its own mitigation and business continuity strategies.
"Insurance is not good enough," he said.
For insurance executive Hall, the lesson for multinational companies is in business continuity planning: Were organizations able to strengthen their supply chain to handle disruptions in Japan? Or, as well, do they have contingent business interruption insurance for the particular peril that took down their supplier or buyer, in that particular country?
"Good companies will call us and say, 'This facility is down. But we're ramping up our production in Taiwan and China ... and ultimately we think we can make up the difference,' " Hall said.
That way, the loss is minimized, along with the complicated insurance claims process.
March 22, 2011
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