TOKYO -- Two big Japanese insurers will raise the cost of commercial earthquake insurance in July as new estimates point to a greater risk of catastrophic temblors.
Tokio Marine & Nichido Fire Insurance will hike premiums by 17% on average. The sharpest rise will amount to nearly 70%. Mitsui Sumitomo Insurance is planning an average increase of 5-10%. Sompo Japan Insurance may raise premiums next fiscal year.
Overall, the increases will exceed those following the March 2011 quake that unleashed a devastating tsunami on northeastern Japan.
Japanese companies pay around 100 billion yen ($967 million) a year for earthquake insurance, commonly purchased as an add-on to fire policies. More small and midsize businesses have been considering this option since the 2011 disaster.
Tokio Marine's premium hikes are skewed toward areas where coverage has been cheap relative to the risk of quakes or the concentration of old, damage-prone structures. Tokyo, Osaka and Nagoya will see higher-than-average increases affecting a broad range of businesses.
The cost of 100 million yen in coverage for a Tokyo office building or factory constructed in 1981 or later will go up 20% to around 1.2 million yen a year. But even structures built before then may qualify for a new 20-30% discount if they meet the land ministry's quake resilience standards that took effect in 1981. Thanks to this and other incentives, some companies may actually see their premiums fall.
A quake in the Nankai Trough, an undersea zone off the Pacific coast southwest of Tokyo, could cause as much as 220 trillion yen in damage, according to a report last year by a Cabinet Office working group. Private-sector losses would account for 148 trillion yen of the total. Based on these and other estimates, Tokio Marine and Mitsui Sumitomo Insurance see a need to raise premiums substantially to cover potential liabilities.
Big insurers paid out around 600 billion yen in commercial claims resulting from the 2011 quake. Premiums rose more than 10% on average the following fiscal year, the biggest increase to date.
The cost of government-run residential earthquake insurance is also set to rise in July, by an average of 15.5%.