Japan Claims May Rival Katrina’s

Japan’s recent earthquake and resultant tsunami is turning out to be the most expensive catastrophe for insurers since Hurricane Katrina in 2005, according to a new report. Risk modeling company Risk Management Solutions estimates that insurers face between $21 billion and $34 billion in total losses.

Insures face property losses of $18 billion to $26 billion. Life- and health-insurance claims will add about $3 billion to $8 billion to the total, said RMS. Last month, RMS competitor AIR Worldwide reported that the Japan quake and tsunami could cost insurers approximately $20 billion to $30 billion, an estimate that did not include life insurance claims. Eqecat also issued estimates, predicting insured losses at $12 billion to $25 billion, which included up to $3 billion in life-insurance costs.

The exact cost of the disaster won't be known for months.

“Insured exposure in Japan is a complex landscape of coverage, varying considerably by class of exposure and line of business,” Robert Muir-Wood, chief research officer for RMS, said in a statement. “The biggest challenge to loss modeling of the Tohoku event is not the details of the property damage itself, but rather sampling and modeling the underlying pattern of insurance take-up rates and restricted terms of coverage. Residential and commercial earthquake insurance was purchased in areas where people perceived the threat, but the Tohoku earthquake was not an event they were led to expect.”

Some reinsurers have come forward with their own estimates of exposure. Hamilton- Bermuda, based Everest Re Group Ltd. expects its net losses from last month’s earthquake and tsunami in Japan to total $320 million, net of reinstatement premiums and taxes, the company confirmed.

The reinsurer said that “the unprecedented nature and scale of the loss and its relatively recent occurrence introduces significant complexity and uncertainty to the loss estimation” process.

RMS noted that the losses for risks on the commercial and industrial side are modeled to include potential effects of direct and contingent business interruption. The estimates do not include effects of Fukushima Daiichi Nuclear Power Plant, which by its classification is excluded from coverages.