TOKYO -- Sompo Japan Nipponkoa Insurance will tailor corporate earthquake premiums to 948 areas nationally instead of to entire prefectures, a revision that likely will raise rates in tsunami-prone coastal sections and reduce premiums for inland regions.
The changes will be enacted by February at the soonest, applying to corporations that either renew or sign new policies starting that month.
The overhaul is driven largely by the disparate risks affecting regions even at the prefectural level. The current setup specific to each of the 47 prefectures does not gauge risks of building destruction, fires, tsunamis and other quake-related hazards in a precise manner. The new, smaller areas for discriminating risks and premiums will correspond to postal codes.
A proprietary risk model will be developed in conjunction with the National Research Institute for Earth Science and Disaster Prevention, among other groups. In the case of tsunamis, the model will estimate the height and speed at which waves will hit a building.
The revised rates also will reflect differences in building structures. The higher repair costs for structures built with reinforced concrete will result in rate increases of roughly 20% on average. Buildings constructed with steel frames or wood will receive discounts averaging around 15%.
The Sompo Holdings unit said about 40% of corporations will pay higher premiums while roughly 60% will enjoy lower rates, based on location and structural factors.
Regarding the catastrophic earthquake expected to originate in the undersea Nankai Trough off the Pacific coast of central and western Japan, inland regions toward the Pacific side likely will see lower premiums while rates will tend to rise in the adjacent coastal areas, Sompo Japan said. Many of the insurer's corporate clients are based in the Tokyo area, making the company liable for outsized damages if a major temblor strikes that city. This exposure will be reflected in the revised rates.
Sompo Japan will expand earthquake coverage as part of the overhaul. Compensation will be extended to properties damaged by fires and explosions connected to volcanic eruptions, as well as to plants and business establishments built before 1971. The policies also will cover products in the process of being manufactured, along with buildings and equipment.
The insurer will boost the maximum payout in many areas. The limit will remain the same in parts of the Kanto and Chubu regions surrounding Tokyo and Nagoya. But clients in Osaka, Hyogo and Wakayama prefectures could receive as much as 1 billion yen ($9.66 million), up from 100 million yen. The Kyushu region except Okinawa Prefecture will have the limit raised from 500 million yen to 2 billion yen. Client maximums in Hokkaido, Aomori, Ishikawa, Okinawa and 13 other prefectures will go from 1 billion yen to 2 billion yen.
Earthquake insurance policies marketed to Japanese households have base prices determined by the industry-launched General Insurance Rating Organization of Japan. But no common standards exist among insurers governing corporate policies. Tokio Marine & Nichido Fire Insurance and Mitsui Sumitomo Insurance both raised rates in 2014 after the government published a bleaker damage scenario resulting from a Nankai Trough quake. Neither company plans to modify rates at present.