natural catastrophe risk management policy in japan

Natural Catastrophe Risk Management Policy in Japan

Hirokazu 　 TatanoDisaster Prevention Research

Institute, Kyoto University

Global Conference on Insurance and Reınsurancefor Natural Catastrophe Rısk ： The Role of Public-Private Partnerships December 8–9, 2005

Global Conference on Insurance and Reınsurance for Natural Catastrophe Risk ：The Role of Public-Private Partnerships December 8–9, 2005

Disaster Prevention Research Institute Kyoto University

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Contents Natural Disaster in the World Natural Disaster in Japan Weather Related Disaster Risk

Management Risk Control Policies Risk Financing Policies

Earthquake Disaster Risk Management Risk Control Policies Risk Financing Policies

Discussion & Conclusion



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Great Natural Disasters in the World

Source: Munich RE. 2005



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Economic losses and insured losses with trend

Source: Munich RE. 2005



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Trend of Natural Disaster in the Trend of Natural Disaster in the worldworld

Larger catastrophic disaster is more likely to occur. Number of Disaster for which some

international aid is executed. 60s： 90s=1:3

Economic losses glowed in high rate 60s： 90s= 1:9

Insured losses increased in higher rate Anti-catastrophe insurance available in high-

income countries 60s： 90s =1： 16



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What is happening?

Increase in exposure : Population and assets are concentrating to hazardous area

Vulnerability : Population and assets have not enough resistance against natural hazards



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Natural Hazard →DisasterConsequences　ofHuman Behavior

Hazard: Flood, Earthquakes,,etc

Population & AssetExposure ： population and asset

exposed to the threat of natural hazards

Vulnerability: degree of resistance of the asset & population against disaster



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http://www.faculty.fairfield.edu/faculty/hodgson/Courses/so11/population/urbanization.htm

Urban population is dominating in the world



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Higher vulnerability in less income

countries

Source: Munich Re. 2005

Large natural disasters over period 1980- 2005



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Proactive CounterProactive Counter 　　MeasuresMeasures 　　 ofof 　　 DisasterDisaster 　　Risk ManagementRisk Management

Risk ControlRisk Control

Risk FinanceRisk Finance

Risk Avoidance/PreventionLand use Regulation


MitigationsBuilding codeHigh-Tech. Instruments:

(Actuator, dumper, etc)



Risk TransferInsuranceART, Cat-Bond


Risk AcceptanceBuilding Risk ReserveSelf-Insurance, Captive

Finite, etc


Finite, etc

Actions taken before catastrophic events as to prevent/reduce (direct) losses

Actions taken before catastrophic events as to prepare funds for recovery process











Finite, etc


Finite, etc














Finite, etc


Finite, etc














Finite, etc


Finite, etc













Finite, etc


Finite, etc



Benefit of Mitigation can be different. It depends on the possibility of risk transfer [ Kobayashi & Yokomastu 2000].

Combination of Risk control and financing measure is important!

Needs for integration



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Smaller insurance coverage natural disaster losses in lower income countries

Source: Munich Re. 2003

Large natural disasters over period 1980- 1999



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Proactive risk financing is less used in developing countries

Source: Warner 2005.



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Current and ideal disaster risk management counter measures in developing countries

Source: Warner 2005.



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Observations and Issues Disaster related losses are increasing in the

world. Less developed countries are more

vulnerable and have less insurance coverage.

Proactive disaster risk management is ideal but difficult in practice in developing countries.

How can we overcome such problems?

Japanese experience

Natural Disasters in Japan

A Natural disaster-prone country



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J apan, 95,21%

Other, 359,79%

J apan, 96,11%

Other, 743,89%

JAPAN: A Disaster-Prone Country

Number of earthquakes with magnitude of 6.0 or larger

• Japan covers only 0.25% of the land area on the grove, the number of earthquakes and distribution of active volcanoes is quite high.

• 20% of earthquakes with magnitude of 6.0 or larger were occurred in Japan.

• 10% of active volcanoes is located in Japan.

Number of active volcanoes



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Epicenters of Earthquakes which were magnitude 4.0 or above from 1980 to 1996

International Seismological Centre



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The Number of Deaths and Missing in Natural Disasters in JapanTonankai

quakeHanshin-Awaji ea

rthquakeFukui

quake TyphoonIse-wan

Weather Related Disasters



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Amount of Damage of Facilities due to Disasters

Annu

al D

am

age

Perce

nta

ge in

the

GD

P

Percentage in the GDP

Amount of Damage of Facilities

(billion Yen)

Disaster Management Policies

Earlier development



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Disaster Relief Act (1947)

1943 Tottori Earthquake 1,083

1944 Tohnankai Earthquake 1,223

1945 Mikawa Earthquake 2,306

1945 Typhoon Makurazaki 3,756

1946 Nankai Earthquake 1,443

Large Earthquakes struck Japan during 1940s.

Government’s relief policy was established



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Large scale flood disasters frequently happened from 1930s to 1950s.

Year-Mon.Year-Mon. CauseCause DeathDeath MissingMissing CausalityCausality

1934.91934.9 Muroto TyphooMuroto Typhoonn

27022702 334334 1499414994

1945.91945.9 Makurazaki TypMakurazaki Typhoonhoon

24732473 12831283 24522452

1947.91947.9 Catharine Catharine TyphoonTyphoon

10771077 853853 15471547

1954.91954.9 Toyamaru TyphToyamaru Typhoonoon

13611361 400400 16011601

1959.91959.9 Isewan TyphoonIsewan Typhoon 46974697 401401 3892138921

http://www.ffortune.net/social/seso/nihon-mei/muroto-taihu.htm



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High Tide Disaster by Isewan Typhoon in 1959

http://www12.freeweb.ne.jp/photo/ajapskwn/saigai/p02.htmlhttp://www12.freeweb.ne.jp/photo/ajapskwn/saigai/p02.html



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Disaster Management Policy

Needs for change of the policy from reactive to proactive

approach. In 1961, the Disaster

Countermeasure Basic Act was legislated.


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Disaster Countermeasure Basic Act (1961) The immense damage caused by the Typhoon Ise-wan i

n 1959 was a turning point for disaster management, giving rise to a movement to plan and prepare a comprehensive disaster management system, and in 1961, the Disaster Countermeasures Basic Act was enacted.

Thereafter, the disaster management system has been improved and strengthened following the occurrence of large natural disasters and accidents.



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Change in Disaster Management Related Budget



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Changes in Disaster Management Budget by Category Classification



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Regional Disaster Prevention Plan Triggered by Isewan disaster and enforced. Every level of public sectors shall have a plan

by disaster prevention basic act (legal duty). A plan shall include long-term establishment p

lan on (1) forecasting system, (2) facilities for flood fighting, (3) warning criteria, (4) rescue system, and (5) communications in emergency.



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The Great Hanshin-Awaji Earthquake, 1995

Effective Disaster Response is required.

Rapid Response, Information systems, Crisis Management, etc



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Disaster Management Systems Organizational Change in the National

Government At the time of the reorganization of the Central

Government in 2001, the Cabinet Office undertook the administrative duties for disaster management. The Director-General for Disaster Management is mandated to undertake basic policy making and planning, coordinate the activities of all ministries and agencies and respond to large-scale disasters. In addition, the position“Minister of State for Disaster Management” was newly established as the Minister State for Special Missions.

Disaster Information Systems Disaster Management Related Communication

Network

Etc.



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Disaster ManagementRadio Communications System

Flood Risk Management Policies



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Features of Flood Risk Management in Japan Intensive investment for structural counter measures of

flood control Comprehensive flood protection plan including

structural and nonstructural flood protection Widely disseminated comprehensive property insurance

which is run by private insurance company Weak public involvement and conflicts which highlights

tradeoffs between environment and flood protection Weak link to land-use policies

Complementarily between flood risk control and financing measures.



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reservoir

leveediversion

Storage Storage enlargement enlargement and diversionand diversion

dredge

Flood Control Flood Control ((StructuralStructural) Measures) Measures



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Rapid Industrialization and Rapid Industrialization and Urbanization in 1960s and Urbanization in 1960s and 1970s1970s



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Industrialization and Urbanization Needs for Water Use

The River Act revised to aim not only at flood control but also at water utilization.

Needs for Flood Control



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Large-scale Construction of Large-scale Construction of Multi-purpose DamsMulti-purpose Dams

http://www.ktr.mlit.go.jp/tonedamu/index.htm

Flood control purposeFlood control purpose Water supply purposeWater supply purpose

In Japan as of 2000In Japan as of 2000• 2,500 dams2,500 dams• 20 billion m20 billion m33 capacity capacity



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Results of Intensive Structural Flood ControlResults of Intensive Structural Flood Control

Accelerated increase Accelerated increase in economic loss / in economic loss / areaarea

Decrease in Decrease in inundated inundated areaarea



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Land use planning(?) 　 and Flood Protection in

Tokyo 1882

1919

1954

1996

37years past

35years past

42years past

1911 1930

Construction of Edo-Gawa discharge channel



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Retention ponds and infiltration

Flood-proofing

Conservation of upper-stream basin

Flood insurance

Forecasting and early warning

Flood fightingLand use control/management*

* Not working well in Japan

H

Radar

Flood Hazard Mapping

Non-structural flood control counter measures



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Tsurumi River Basin (235 km2)

http://www.keihin.ktr.mlit.go.jp/TURUMI/masterplan/j1/j01gaiyo_gaiyo2_2.htm

19481948

19951995

Red ＝ urban area

Dark green=forest

Light green=farm land

Ratio of urban area =10 %

Pop.=0.49 mil.

Ratio of urban area =83 %

Pop.=1.7 mil.



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Comprehensive Flood Protection Plan ：Immediate Target for Structural Countermeasure Development for Flood ProtectionIntroduction of Non-Structural Countermeasures

River channel capacity expansion up to 50mm/hr

Increase of Retention Capacity Development of retention ponds/pools

to mitigate the increased run-off is asked for when a urban development project is executed.

Public provision of flood hazard maps



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Flood Risk Financing Fire Insurance covers wind, hail and

snow triggered disasters like storms and avalanches.

Comprehensive property insurance covers not only wind, hail and snow triggered disasters but also water related disaster like floods.

These insurances provided by private insurance companies.



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0

20

40

60

80

100

0 20 40 60 80 100Loss ratio(%)

Payout(%)

● Storm

0

25

50

75

100

0 25 50 75 100Loss Ratio(%)

Payout(%)

● Flood

Comprehensive property insurance



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Total and insured losses of major weather-related disasters in the past

No Name year Total Loss(US$)

Insured Loss(US$)

%

1 Typhoon No.19 1991 10,000,000 5,400,000 54

2 Typhoon No.18 2004 6,000,000 3,000,000 50

3 Typhoon No.18 1999 5,000,000 3,500,000 70

4 Typhoon No.23 2004 7,500,000 2,400,000 32

5 Typhoon No.16 2004 6,000,000 3,000,000 50

6 Flood (Tokai) 2000 7,440,000 990,000 13

7 Flood (Niigata, Fukui)

2004 1,950,000 279,000 14

Source: EM-DAT 2005



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The Nagara River Estuary Barrage Conflict

Location

Nagara River Estuary Barrage

The Nagara River flows out of the mountains of Gifu Prefecture in central Japan. For roughly a half of its 136-kilometer course, it runs south through narrow valleys. Then, flowing through high dykes, it makes its way across the Nobi Plain before emptying into Ise Bay, and into the Pacific Ocean.



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Upper : http://www.chugoku-np.co.jp/News/990629_gouu/photo/2.html

Left: http://wwwsoc.nacsis.ac.jp/jsce2/report/02/01/sokuho.htm

Death:27

Landslides ：Hiroshima （ 1999. ６）



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Improving Flood Risk Management

Weak public involvement and conflicts which highlights tradeoffs between environment and flood protectionNew River Act (1997): Improving environment becomes

one of the objects of river management. Public involvement becomes requirement for implementation plan.

Weak link to land-use policiesPartial improvement for landslide hazard: It becomes

mandatory to explain landslide risk for sellers to buyers when real estate is in the dangerous zone against landslide hazard.



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ProcedureDevelopment of a basic plan for the implementation of construction works

Authorization of the basic plan for the implementation of construction works

River Council

Opinion

DetailsFundamental policy, design flood, design flood flows and other details of the river works

ProcedureMaster planOpinions

Details: Details of river works and river maintenance

Drafting of implementation plan

Authorization of implementation plan

Heads of local Heads of local public bodiespublic bodies

Opinions

OpinionsLocal residentsLocal residents

Procedure Drafting of a fundamental river management policy

Opinion

Details: Fundamental policy, design flood, design flood flow and others

Authorization of master plan

River Council

Old planning procedureOld planning procedureOld planning procedureOld planning procedure New planning procedureNew planning procedureNew planning procedureNew planning procedure

Master PlanMaster PlanBasic plan for the implementation of construction works

Basic plan for the implementation of construction works

Implementation planImplementation plan

ExecutionExecution

ExecutionExecution

Academic expertsAcademic experts

New river act was legislated in 1997.

Earthquake Risk Management Policies

Focusing on earthquake risk financing



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Distribution of the Epicenters of 　 Earthquakes Causing Damage (from 1885)



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Earthquake Insurance in Japan Earthquake Insurance on Dwelling Risks will

pay claims for losses of buildings or contents caused by fire,destruction, burying or washing-away following earthquake, volcanic eruption, or tsunami following earthquake or volcanic eruption.

The insured amount of Earthquake Insurance on Dwelling Risks is set between 30% and 50% of the insured amount of fire insurance, and the upper limits are 50 million yen for dwelling houses and 10 million yen for household goods.

The national government is managing the system.



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Establishment of the earthquake insurance system

Jun. 1964 Niigata earthquakeThe Minister of Finance asked the Insurance Council to develop specific policies for earthquake insurance

Apr. 1965 Report of the Insurance CouncilDecide the outline of insurance, coverage, reinsurance method, underwriting method, etc.

Jun. 1966 Act for Earthquake Insurance The system was carried out



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The system initially introduced

Coverage of insurance Buildings for residential use and

Household goods The objective of this system is considered to

be to contribute to stabilization of the livelihood

Risk covered Earthquakes, Volcanic eruptions,

Tsunami



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The system initially introduced Insurance organization

Stop-loss reinsurance by the government

The present reinsurance scheme is below0

\ 75 billion$ 0.6 billion

\ 13118 billion$ 11 billion

\ 5,000 billion$ 41 billion

Loss of a single earthquake

50 %

5 %Liability of private

Insurance companies

Liability of the government



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The system as initially introduced

Premium rate1st class location2nd

2nd or 3rdstructur

e

location

Non-wooden structures

Wooden structures

1st \ 0.60 \ 2.10

2nd \ 1.35 \ 3.60

3rd \ 2.30 \ 5.00

Per year and \1,000 of insurance coverage



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Revisions in 2001 Situations

Many research on the earthquake were reported, and the ways of destruction of modern houses became clear

After the huge disaster, awareness of earthquake insurance became high, and a lot of opinions were given



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Revisions in 2001 Introduction of discount system

Discount for time of construction (10%) Considering investigations of damage 1995 Great

Hanshin-Awaji earthquake Discount for earthquake resistance grade (1

0% - 30%) The dwelling performance indication system develo

ped by the government have put into operation



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The present system Premium rate

Discount system Discount for time of construction (10%) Discount for earthquake resistance grade (10-

30%)

structure

location

Non-wooden structures

Wooden structures

1st \ 0.50 \ 1.20

2nd \ 0.70 \ 1.65

3rd \ 1.35 \ 2.35

4th \ 1.75 \ 3.55Per year and \1,000 of insurance coverage



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The present system The limit of amount insured

\ 50 million for a building ($ 0.4 million)

\ 10 million for household goods ($ 83,000)



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Future of the earthquake Insurance system

Problems Regional divisions of premium rate The proportion insured (30 – 50%) Low penetration rates of the

earthquake insurance The number of Earthquake policies per the

number of Fire policies are 37.4% ( 2004) Etc...



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Developments in Ownership of Earthquake Insurance on Dwelling Risks Policies



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Other earthquake risk financing tools Mutual Insurance

e.g., JA Mutual InsurancePayout after the great Hanshin-Awaji earthquake (billion Yen)

ART Cat-Bond (parametric bond) Contingent Dept Facility Etc.

Direct total loss

Insured amount of Earthquake Insurance

Insured amount of JA Mutual Insurance

Insured loss in total

10,000 78 119 200(2%)



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Trust company (fund management)

Company（ Oriental Land ）

SPC* Investor

financial transaction

commission （ 3.1% / year ）

bond issuing

commission + interest (market rate)

$100 million interest (market rate)

*Special Purpose Company

$100 million

Trust company

Company（ Oriental Land ）

SPC* Investorpayment of capital

$0~$100 million

payment of the balance after principal reduction

principal payment

Ordinary days

Earthquake

Cat-Bond for private firms



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Parametric Cat-Bond

Inner Grid Outer Grid

7.1 7.3 7.5 7.7

20.00

32.00

44.00

56.00

68.00

80.00 80.00

65.00

50.00

20.00

35.00

JMA Magnitude

US Dollar Losson Original NotionalAmount in Millions



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Contingent Debt Facility

fund managementwith safe assets

Company(Tomoegawa Paper) SPC* Lender**

loan reservation contract

commission

syndicate loan

interest

$4 billion asset management yield

Ordinary days

Earthquake

**Sizuoka Bank, Mitsui Sumitomo Insurance, etc.

guarantee commission

Development Bank of Japan

debt guarantee

debt guarantee

loan draw down $0~$4 billion

interest interest

guarantee commission

Development Bank of Japan

Company(Tomoegawa Paper) SPC* Lender**



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Issues Households

Low dissemination of earthquake insurance in household

Limited coverage Partial link between premium and seismic

vulnerability Firms

Few firms has earthquake insurance policies General

Built up a bridge between insurance and mitigation



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Niigata Chuetsu EQ (Oct.23,2004)

Niigata Chuetsu6.8 M (JMM, Largest )10km depth?Unknown fault?

5KmKawaguchi Town

Ojiya

Yamakoshi

Landslide

Damage of Road

Due to successive aftershocks and road network Damages, recovery speed ofInfrastructures were slow



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Estimated Economic Losses of Chu-Etsu EQ(Pref. Gov. of Niigata)

Item Amount(billion yen)

Infrastructure such as Highway,Railroad, River and Bridge

1,200

Agriculture, Forestry and Fishery 400

Losses of Medium and Small Companies 300

Dwelling Houses 700

Power, Gas and Water Services 100

Others（ Schools, Hospitals, etc.）　 300　Total 　 3,000



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Niigata Sanyo Electronics co. suffers economic losses in their property in 50 billion yen. But, even such a big company did not have earthquake risk financing counter measures.



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Way forward to building up the bridge for firms Business Continuity Plan will be

required for large scale companies and recommended for middle and small scale companies.

Encourage good firms through market Investors and Public relations

Mitigation and Risk Financing?



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Characteristics of Risk GovernanceFor Earthquake Risk

(Viewpoint: Manageability by victims)○Risk characteristicsImperfect knowledge on EQ disaster-scale and occurrence.

Mitigation cost considerably and ambiguous measurement of performance of building

○Governance corresponding to risk characteristics (hypothesis)→Low incentives for mitigation by individual building owners and

limitation on direct management by governments.

Different types of vehicles, i.e., information sharing, regulation, market mechanism which includes economic incentives, are used for harmonized risk governance.

Risk Governance Under Ambiguity



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Discussion & Conclusions Risk Governance Related Issues: Feasible and affordable countermeasures are

necessary to cope with threats brought by complexity and interdependencies of critical infrastructure.

Legitimacy Question: Do we have proper arrangement of right to decide under ambiguity?

Ownership/responsibility and Coordination/Partnership

Information 　 Issues: 　 incentive for reporting truth (Accountability?), measurement technologies 　



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Thank you very much for your attention!

natural catastrophe risk management policy in japan

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