1 in 10 Japanese people have been “significantly” affected by the massive earthquake in the country’s worst crisis since World War 2

A huge magnitude 9 earthquake struck a mega-fault line about 80km off the eastern coast of Japan on March 11 at 2:46pm local time.

The event triggered a massive tsunami that swept away cars, structures, and ships, as well as impacting coastal towns as far across the Pacific as Northern California.

It is the most powerful quake to strike Japan since records began and is causing the worst humanitarian disaster in the country since World War Two. The earthquake is also producing significant losses to the insurance industry.

Local media in Japan created this Facebook page with photos of the crisis.

What follows is a summary of the main risk management and insurance industry coverage.

Insurance impact

According to a EQECAT report: “Damage from the quake is focused on the prefectures of Chiba (northern), Ibaraki, Tochigi, Fukushima, Miyagi, and Iwate (southern). The city of Sendai (1m people) experienced the worst damage. Over 12m people (10% of the total population of Japan) have been significantly affected by this event”

EQECAT estimated the total insured loss from this event to be $12-25bn. $2bn to 4bn of total insured loss is expected to be ceded to the Japan Earthquake Reinsurance Pool.

AIR Worldwide figures released on 12 March placed the economic loss at approximately $100bn and insured property losses in the range of $15-35bn. These estimates do not specifically include the impact of the ensuing tsunami, demand surge or life insurance.

Fitch does not expect major downgrades to arise from the quake, although individual insurers could be downgraded if loss estimates escalate.

It is unlikely that the earthquake will be a market changing event by itself, but when combined with other catastrophe losses taken earlier in the year, and with the prospect of further catastrophe losses to come, it could be a catalyst for a pricing hike, commented Fitch.

AM Best expressed a similar opinion and said that non-life insurance companies in Japan should be able to absorb the losses without a negative impact on their ratings.

Japan ranks as the fourth largest non-life market after the US, Germany, and the UK. Despite the size of the market, insurance penetration and density is very low when compared to leading western markets, particularly in commercial and industrial lines.

Commercial and industrial lines are significantly under-insured, said cat modeler RMS. “Many large corporations only insure their properties on an indemnity basis only, with no loss of profits or earthquake insurance. Many small to medium sized business are completely uninsured.”

Fitch Ratings said that while the earthquake in Japan will be among the largest insured losses in history, it can be absorbed by the insurance and reinsurance industries without widespread solvency problems.

Commercial impact

The disaster, however, has caused significant disruption to international supply chains. According to RMS car manufacturing plants, electronics factories, and oil refineries have all suspended operations across large parts of Japan. Nissan and Toyota have closed several of their facilities.

Japan’s largest oil refiner also suspended operations at three refineries.

Meanwhile, Sendai Airport was inundated by the tsunami triggered by the quake. The airport ramp and surrounding runways were completely flooded. Haneda and Narita Airports, which serve Tokyo, were also closed after the earthquake struck, according to RMS.

There are also reports that all ports in the country have been closed

Nuclear meltdown risk

One of the most immediate worries is the effort to cool down fuel rods inside two nuclear reactors at the Fukushima Daiichi plant which was significantly damaged by the quake. A power failure and quake damage caused the essential cooling systems to shut down and become incapable of cooling the reactors. Plant operators were forced to release radioactive steam from reactor buildings and use sea water in hopes of cooling the reactors.

Japanese authorities are still engaged in a desperate bid to cool the reactors (watch a video here) although they believe a full-scale meltdown is not likely.

According to a report from the International Atomic Energy Agency (IAEA), the event at Fukushima Daiichi Unit 1 was listed as Level 4, reported Aon Benfield’s impact forecasting team. The 1986 Chernobyl nuclear power plant accident in Ukraine was listed as a Level 7 event.

Lloyd's insurer Chaucer confirmed its exposure to nuclear power plants in Japan, but said losses would be limited.