Commercial insurance premiums in Japan are expected to increase by 4.4% in 2019, and over the long-term, business interruption (BI) cover is anticipated to be a source of expansion for the commercial insurance space in the region, according to Swiss Re Institute.
Expected premium growth in the commercial insurance sector in Japan in 2019 is on the back of an estimated 1.6% expansion in 2018, and average annual growth of 3.1% over the last three years.
In a recent report, Swiss Re Institute, a unit of global reinsurance giant Swiss Re, notes that while last year’s premium expansion was supported by higher premium rates in loss-affected property lines, moving forward, BI covers are expected to drive commercial insurance premium growth in Japan.
“Many firms in Japan, particularly SMEs have little BI coverage in place. The increasing digitisation of business activities and also globalisation have increased the disruption exposures companies are facing. According to responses to a survey conducted by World Economic Forum in 2018, cyberattacks and natural catastrophes are the top risk concerns for Japanese companies,” says the report.
Japan is highly susceptible to natural catastrophe events, and while businesses generally have property damage protection in place, adverse weather often disrupts business operations as well, resulting in a loss of output.
The Swiss Re Institute states that across the world, the BI proportion of property claims typically account for more than 50% of the incurred loss. Adding that today, it is uncommon to see single risk claims exceed $100 million, and in certain instances even approach $1 billion.
“However, in Japan many companies – particularly SMEs – do not have BI cover, a source of premium growth potential for insurers.
“According to a survey conducted by Japan Cabinet Office in 2017, at the time of the 2011 earthquake only 36% of large Japanese corporations had earthquake insurance coverage, and only 13% of the policies came with earnings protection cover. This implies that less than 5% of large companies had earning protection covers,” explains the report.
For SMEs the figures are even lower, with less than 10% of companies saying they had earthquake protection. According to Swiss Re Institute, this explains why just 17% of the total economic losses from the 2011 quake were covered by insurance protection.