Although it happened half a world away, the economic ripples of Japan’s 3-part catastrophe (earthquake, tsunami, nuclear melt-down) will be felt here in Canada.
Because it is the world’s third-largest economy, the devastation in Japan is already resulting in supply-chain interruptions on everything from auto parts to electronics to aircraft assembly.
In the financial sector, the events of earlier this month – particularly when coupled with the New Zealand earthquake – will inevitably result in higher insurance premiums.
The impact will not be immediate and may not be substantial. But the global insurance market is a complex financial web so that a large loss in one part of the world (like Japan) will have an effect on premiums paid around the world (including in Canada).
Every insurance company buys reinsurance to provide some level of protection against catastrophic loss. Reinsurance companies in turn cede risk to other financial players to bring some predictability and certainty to their results.
It is now being reported, that reconstruction cost estimates by the Japanese government exceed $309B. This would make it the most expensive natural disaster in history, far surpassing Hurricane Katrina at $125B (New Orleans in August 2005).
It appears that a relatively small portion of Japan’s loss is insured outside of government (currently estimated at under $35B), and of that a smaller portion is carried by insurers outside the country. And with a debt-to-GDP ratio of over 100%, how will Japan pay for this?
But given the dimension of loss, we’ll all feel the effect.
Insurers in Canada and elsewhere will be paying more for reinsurance which will in turn be reflected in the premiums they charge. That will be a recurring theme as the ripples reach around the globe.
The 10 Costliest World Earthquakes and Tsunamis by Insured Losses
www.ilstv.com
Source from 2011 Munich Re, Geo Risks Research, NatCatSERVICE
Tags: earthquake, environment, japan, risk, tsunami, water, weather
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HG
March 28, 2011 at 12:28 pm
The catastrophe lost are becoming more frequent and more severe. The reinsurance company does not have the time to recoup their losses before another major event occurs. Rate increase has to be taken to help to pay for these losses.
mr
March 28, 2011 at 2:44 pm
Unfortunatly the increase in Insurance Premiums is inevitable.
HC
March 29, 2011 at 8:14 am
A hike in insurance premiums is miniscule compared to what Japan is going through. Let’s not complain.
HC
March 29, 2011 at 8:14 am
A hike in insurance premiums is miniscule compared to what Japan is going through. Let\’s not complain.
jp
March 29, 2011 at 1:19 pm
It is devastating what has happened in Japan. And amazing to think that we will feel the effects of this tragedy way over here.
sl
March 30, 2011 at 9:36 am
Unimaginable devastation! ..our hearts go out to the people of Japan. And now above all the incredible disaster they have the stress of worrying about actually getting radiation poisoning. Really! we have nothing to complain about if rates rise.
LR
March 31, 2011 at 8:46 am
It is devastating what has happened in Japan and now radiation poisoning. We are very fortunate and a hike in insurance premiums is nothing to complain about.
PL
April 1, 2011 at 3:08 pm
It is truly amazing how much everything is effected by the Japan quake. ( or any quake)
Its not just the instant deaths, or property damage. its
the long term effects this will cause.