行政院國家科學委員會專題研究計畫 期末報告
強制地震保險法之立法研究
計 畫 類 別 ： 個別型 計 畫 編 號 ： NSC 101-2410-H-004-039- 執 行 期 間 ： 101 年 08 月 01 日至 102 年 07 月 31 日 執 行 單 位 ： 國立政治大學法律學系 計 畫 主 持 人 ： 張冠群 計畫參與人員： 碩士班研究生-兼任助理人員：葉伊馨 報 告 附 件 ： 出席國際會議研究心得報告及發表論文 公 開 資 訊 ： 本計畫涉及專利或其他智慧財產權，2 年後可公開查詢中 華 民 國 102 年 10 月 25 日
中 文 摘 要 ： 2011 年 3 月 11 日，日本東北發生芮氏規模 9.0 強震，並 引發海嘯。據估計，本次震災造成財產損失估計達約 500 億 美元，相當於 2010 年全球因巨災保險所生保險理賠總額。 同年 2 月，紐西蘭基督城發生芮氏規模 6.1 強震，亦造成 30 至 50 億美金之財產損失。對日本或紐西蘭而言，地震損 失風險，對個人財產或產業而言，均係最大之單一巨災損失 風險。同樣處於地震帶的我國，亦於 2001 年 7 月 9 日增訂 保險法第 138 條之 1，建構我國地震保險制度。地震損失風 險之特性屬損失低頻率但高幅度之巨災風險，地震事故一旦 發生，因其破壞力造成之財產損失金額將難以估計，對一般 住宅所有人之財產而言，勢將肇致嚴重損失，若無其他風險 移轉分散或理財機制，財產所有恐突失經濟實力，生活必將 陷於不安定。惟觀諸我國住宅地震基本保險之投保人，多係 來自住宅抵押貸款之抵押人，為取得貸款之需要，因履行貸 款契約之條件而投保，其他一般住宅房屋所有人對地震損失 風險之意識仍屬匱乏，遑論以購買地震保險移轉地震損失風 險。是故，倘不採強制投保，地震保險做為提供地震損失基 本保障之政策性目標，勢將隨之受限，藉之於地震損失發生 時發揮穩定社會經濟之功效，亦必不可期。然因日本與紐西 蘭之具體事例殷鑑不遠，強制地震保險之推動，似有加速之 必要。惟強制地震保險之實施，尚面臨承保能量不足，風險 測定困難及再保機制安排等問題，此些問題或需賴市場機制 自然調整，或需由政府建構風險轉分機制，以政府擔任再保 險人或政府任溢額保險人或政府提供資金挹注等方式以擴大 承保能量與解決，關於此些難題，本研究將一一探藉問題導 向之研究方法解決之道。最末，為協助建構強制地震保險制 度，本文將就強制地震保險法，針對強制地震保險之法源及 政府風險轉分機制等議題，巨細靡遺提出立法建議。 中文關鍵詞： 地震保險、巨災風險
英 文 摘 要 ： On March 11 2011, an 8.9 magnitude earthquake struck Northern Japan which incurred property losses of 50 billion US dollars. A month earlier, Christchurch, New Zealand was also hit by a 6.1 magnitude
earthquake that cause property losses between 3~5 billion US dollars. Taiwan, an island situated at the junction of the Eurasia Plate and Philippine Sea Plate, is on a high-risk seismic belt where damage associated with an earthquake is likely to be as tremendous as those in Japan or New Zealand. Although such risk has been foreseen so as to trigger the
establishment of the Taiwan Residential Earthquake Insurance Program by the addition of Article 138-1 to the Taiwanese Insurance Law on July 9, 2001, more than 70% of homeowners in Taiwan carrying no earthquake insurance do not seem to perceive the devastating and catastrophic nature of the risk of loss cause by a single earthquake. Given the recent cases in Japan and New Zealand, to launch a
compulsory earthquake insurance system in Taiwan is indispensible because the insurance coverage does perform certain function of economic security after the occurrence of a catastrophe. However, obstacles like the capacity of insurers, model and parameter uncertainty and the possibility of government’s involvement as a ’reinsurer’ are all obstacles facing the successful creation of a compulsory earthquake insurance system. This research attempts to provide resolution to counter such impediments and ultimately propose draft for the legislation of
the ’Compulsory Earthquake Insurance Act’. 英文關鍵詞： Earthquake Insurance, Catastrophic Risk
0
行政院國家科學委員會補助專題研究計
畫
□期中進度報告
□
V期末報告
強制地震保險法之立法研究
計畫類別：□
V個別型計畫 □整合型計畫
計畫編號：NSC 101 －2410 －H －004 － 039－
執行期間：2012 年 08 月 01 日至 2013 年 07 月 31 日
執行機構及系所：政治大學法律系
計畫主持人：張冠群
共同主持人：
計畫參與人員：葉伊馨
本計畫除繳交成果報告外，另含下列出國報告，共 1_ 份：
□移地研究心得報告
□
V出席國際學術會議心得報告
□國際合作研究計畫國外研究報告
處理方式：除列管計畫及下列情形者外，得立即公開查詢
□涉及專利或其他智慧財產權，□一年二年後可公開查詢
中 華 民 國 一○二 年 十 月一 日
1
目錄
壹、 中文摘要及關鍵詞 ... 2
貳、 英文摘要及關鍵詞 ... 2
参、報告內容 ... 3
一、前言 ... 3
二、研究目的 ... 5
三、文獻探討 ... 5
四、研究方法 ... 6
五、結果與結論 ... 7
肆、參考資料 ... 26
伍、計畫成果自評 ... 29
2
壹、 中文摘要及關鍵詞
2011 年3 月11 日，日本東北發生芮氏規模9.0 強震，並引發海嘯。據估計，本次震災造成財 產損失估計達約500 億美元，相當於2010 年全球因巨災保險所生保險理賠總額。同年2 月， 紐西蘭基督城發生芮氏規模6.1 強震，亦造成30 至50 億美金之財產損失。對日本或紐西蘭而 言，地震損失風險，對個人財產或產業而言，均係最大之單一巨災損失風險。同樣處於地震帶 的我國，亦於2001 年7 月9 日增訂保險法第138 條之1，建構我國地震保險制度。地震損失風 險之特性屬損失低頻率但高幅度之巨災風險，地震事故一旦發生，因其破壞力造成之財產損失 金額將難以估計，對一般住宅所有人之財產而言，勢將肇致嚴重損失，若無其他風險移轉分散 或理財機制，財產所有恐突失經濟實力，生活必將陷於不安定。惟觀諸我國住宅地震基本保險 之投保人，多係來自住宅抵押貸款之抵押人，為取得貸款之需要，因履行貸款契約之條件而投 保，其他一般住宅房屋所有人對地震損失風險之意識仍屬匱乏，遑論以購買地震保險移轉地震 損失風險。是故，倘不採強制投保，地震保險做為提供地震損失基本保障之政策性目標，勢將 隨之受限，藉之於地震損失發生時發揮穩定社會經濟之功效，亦必不可期。然因日本與紐西蘭 之具體事例殷鑑不遠，強制地震保險之推動，似有加速之必要。惟強制地震保險之實施，尚面 臨承保能量不足，風險測定困難及再保機制安排等問題，此些問題或需賴市場機制自然調整， 或需由政府建構風險轉分機制，以政府擔任再保險人或政府任溢額保險人或政府提供資金挹注 等方式以擴大承保能量與解決，關於此些難題，本研究將一一探藉問題導向之研究方法解決之 道。最末，為協助建構強制地震保險制度，本文將就強制地震保險法，針對強制地震保險之法 源及政府風險轉分機制等議題，巨細靡遺提出立法建議。 關鍵詞：地震保險、巨災風險貳、 英文摘要及關鍵詞
On March 11 2011, an 8.9 magnitude earthquake struck Northern Japan which
incurred property losses of 50 billion US dollars. A month earlier, Christchurch, New
Zealand was also hit by a 6.1 magnitude earthquake that cause property losses
3
between 3~5 billion US dollars. Taiwan, an island situated at the junction of the
Eurasia Plate and Philippine Sea Plate, is on a high-risk seismic belt where damage
associated with an earthquake is likely to be as tremendous as those in Japan or New
Zealand. Although such risk has been foreseen so as to trigger the establishment of the
Taiwan Residential Earthquake Insurance Program by the addition of Article 138-1 to
the Taiwanese Insurance Law on July 9, 2001, more than 70% of homeowners in
Taiwan carrying no earthquake insurance do not seem to perceive the devastating and
catastrophic nature of the risk of loss cause by a single earthquake. Given the recent
cases in Japan and New Zealand, to launch a compulsory earthquake insurance system
in Taiwan is indispensible because the insurance coverage does perform certain
function of economic security after the occurrence of a catastrophe. However,
obstacles like the capacity of insurers, model and parameter uncertainty and the
possibility of government’s involvement as a “reinsurer” are all obstacles facing the
successful creation of a compulsory earthquake insurance system. This research
attempts to provide resolution to counter such impediments and ultimately propose
draft for the legislation of the “Compulsory Earthquake Insurance Act”.
KEYWORDS: Earthquake Insurance, Catastrophic Risk
参、報告內容
一、
前言
2011 年3 月11 日，日本東北發生芮氏規模9.0 強震，並引發海嘯。據估計，本次震災除造成超 過15000 人死亡，近6000 人受傷外，財產損失估計達約500 億美元，相當於2010 年全球因巨災保險 (Catastrophe Insurance)所生保險理賠總額。同年2 月，紐西蘭基督城(Christchurch)發生芮氏規模 6.1 強震，亦造成30 至50 億美金之財產損失2。對日本或紐西蘭而言，地震損失風險，對個人財產或 產業而言，均係最大之單一巨災損失風險3。日本鑒於其每年發生至少一千次地震，早於1966 年1966 年 5 月18 日公布實施「地震保險法」及「地震保險再保險特別會計法」，並於同年6 月1 日由主管機關 大藏省發布「地震保險法施行細則」，建構限制補償內容與保險金額的住宅地震保險制度，其後歷經 數次改革，乃成今日日本地震保險以居住用建築物為保障範圍、公私協力經營與非強制(房屋所有人有 不投保住宅地震保險之權利，對未投保者法律未有任何罰則之規定) 但具政策保險性質之地震保險制
4
度4。紐西蘭針對地震損失風險，亦設有紐西蘭地震委員會(Earthquake Commission, hereinafter EQC) 對地震損失提供保險保障。其設立目的在就紐西蘭境內住宅財產所有人提供自然天災保險，其中關於 住宅自然災害之事故包含地震、自然土石流、火山爆發、海底地熱活動及海嘯等。在EQC提供之保險承 保標的主要限定為住宅相關財產保險。所承保之住宅建物（居住為目的之建物）、建物內私人財產（惟 不含動力車輛或藝術品）、建物周遭之土地、主要通道與圍牆等其承保範圍則其保險金額最高到10 萬 元紐西蘭幣，性質上屬「強制附加」；另，財產所有人得另外就超過部分另行投保任意保險以提高其 保障範圍5。故日本與紐西蘭面對地震之巨災損失風險，均以法規範建構地震保險制度，對一般住宅房 屋所有人提供保險保障，顯見住宅所有人綜合保險(Homeowners’multi-peril insurance package)甚 或獨立之地震保險甚有需求，並視之為管理巨災損失風險之普遍工具6位於歐亞與菲律賓板塊交界處而 同樣處於地震帶的我國，殷鑑於1999 年「九二一大地震」所造成超過3600 億元之財產損失，亦於2001 年7 月9 日增訂保險法第138 條之1，建構我國地震保險制度。依該條，「財產保險業應承保住宅地震 危險，以主管機關建立之危險分散機制為之。前項危險分散機制，應成立財團法人住宅地震保險基金 負責管理，就超過財產保險業共保承擔限額部分，由該基金承擔、向國內、外為再保險、以主管機關 指定之方式為之或由政府承受。前二項有關危險分散機制之承擔限額、保險金額、保險費率、各種準 備金之提存及其他應遵行事項之辦法，由主管機關定之。財團法人住宅地震保險基金之捐助章程、業 務範圍、資金運用及其他管理事項之辦法，由主管機關定之。」主管機關遂據該條授權，制訂「住宅 地震保險共保及危險承擔機制實施辦法」， 該辦法並於100 年12 月20 日微幅修正。實則日本及紐西 蘭連續強震後，因一次地震所致損失之幅度已證實難以準確預估，日本目前因311 地震之住宅損失部 分保險賠款總額已達9700 億日圓，紐西蘭2009 年及2011 年兩次強震，亦反映保險承保能量不足之事 實。 鑒於我國目前住宅地震保險之投保率僅約28%9，日本及紐西蘭之事例遂引發「政府於地震保險之 角色及其應對承保地震保險之一般商業保險公司提供何程度之風險轉分與承擔」與「地震保險是否應 採強制保險及其應如何立法」之熱烈議論。地震保險倘以社會保險方式為之，形同政府救濟之方式， 因保險的觀念乃全民分攤，倘推動強制性保險，即無所謂分攤分攤概念，似透露政府目對強制地震保 險計畫之躊躇惟查保險除具風險分散與移轉功能外，尚具社會安定之機能，如美國於911恐怖攻擊發生 後，保險公司之總賠款數達350至500億美金，保險業於當時為安定社會，對因恐怖攻擊而毀損之房屋， 均不引用「戰爭除外責任」條款(War Risk Exclusion)予拒賠，即屬其例。惟亦因該次事故肇生之巨 幅損失，美國政府遂於2001年通過「恐怖主義風險保險法」(Terrorism Risk Insurance Act)，而政 府擔任溢額保險人，吸收超逾保險公司承保能量之因恐怖攻擊所生損失之風險，使恐怖主義保險由純 粹之商業保險，兼具政策保險之特性。。同理，住宅地震保險於我國不同於商業保險，其由政府訂定 相關令法規範，並積極主導介入主導該保險運作，舉凡保險金額、保險費率、承擔的限額…等，咸需 經主管機關核定，顯見其受政府監督管理及參與之程度，與一般商業保險自無得等同視之， 故其縱由 商業保險人承保，具政策性保險之性質應屬無疑。另，目前之住宅地震保險縱非強制保險，保險業不 得以住宅地震保險風險過巨為由拒絕承保，此乃因政復對此設有風險分散機制來分散風險，故業者不 得拒絕承保，僅一般住宅所有人未被以法令強制要求投保而已。惟此類政策保險既具社會安定作用， 且係於損失發生後提供被保險人之經濟保障最迅速之風險理財機制，則縱其風險分攤之安排未必完全 等同一般商業保險，卻非其是否應改採強制投保之唯一考量。準此，地震保險於吾國是否應變更為強
5 制保險及倘改採強制保險制度，政府於其中應扮演之角色究為再保險人、溢額保險人亦或單純資金挹 注者等問題及深具探討必要。而倘採強制保險，現行住宅地震保險基金之設計及其組織與運作方式， 自亦有全面檢討之必要。
二、研究目的
本研究主要透過地震損失風險之特性及地震保險應有之定位，探討我國地震保險採強制 保險之必要性、強制保險實施之難處予排除策略、於確認其必要性後立法建議之提出與政府及 於商業保險人承保能量不足時提供風險轉分機制應如何設計等議題。地震損失風險之特性屬損 失低頻率但高幅度之巨災風險，此已如前述。據此，地震事故一旦發生，因其破壞力造成之財 產損失金額將難以估計，對一般住宅所有人之財產而言，勢將肇致嚴重損失，若無其他風險移 轉分散或理財機制，財產所有恐突失經濟實力，生活必將陷於不安定。惟觀諸我國住宅地震基 本保險之投保人，多係來自住宅抵押貸款之抵押人，為取得貸款之需要，因履行貸款契約之條 件而投保，其他一般住宅房屋所有人對地震損失風險之意識仍屬匱乏，遑論以購買地震保險移 轉地震損失風險。是故，倘不採強制投保，地震保險做為提供地震損失基本保障之政策性目標， 勢將隨之受限，藉之於地震損失發生時發揮穩定社會經濟之功效，亦必不可期。然因日本與紐 西蘭之具體事例殷鑑不遠，強制地震保險之推動，似有加速之必要。惟強制地震保險之實施， 尚面臨承保能量不足，風險測定困難(有模型不確定modeluncertainty及變數不確定parameter uncertainty之問題)最末，為協助建構強制地震保險制度，本文將就強制地震保險法，針對強 制地震保險之法源及政府風險轉分機制等議題，巨細靡遺提出立法建議。三、文獻探討
(一) 國內文獻
於學位論文方面，專針對地震保險法制研究者，僅2006 年政治大學風險管理與保險研究 所由鄭啟宏君所撰之「我國住宅地震保險相關法律問題之硏究」一篇，然該文之內容僅究各國 制度為比較並藉之檢討我國現制，並針對現行地震保險契約約款內容為探討，關於強制地震保 險之理論與法制尤其立法論部分，並未論及。加以該論文寫作之時空背景係日本311 地震及紐 西蘭基督城大地震發生前，與本研究之時空背景已有重大差異。 期刊論文方面，若於「台灣期刊論文索引系統」以「地震保險」為篇名搜尋，五年內出 版者僅七篇，關於法制面探討者，付之闕如。唯一與本研究稍有相關者為廖凱民等君2008 年 於「風險評論」第1 卷第1 期所發表之「風險知覺與地震保險意願之關係」，然此文僅得作為 探討強制地震保險必要性之論點之一，與整體法制面之研究及立法之提出完全無關。 技術報告方面，最具代表性且唯一就我國與外國地震保險法制有深入研究者，乃2010 年 由財團法人住宅地震保險基金委託，林勳發教授主持之「強化住宅地震保險法制基礎」研究報 告，計畫申請人亦參與該研究，擔任研究員，每美國與土耳其之地震保險制度及法令與各國法6 規之比較方面進行研究。 總體言之，國內對地震保險法制面研究之文現仍屬匱乏，且專真以強制地震保險為題而 論述者，篇數為「零」。故本研究針對強制地震保險法之立法命題研究，係國內唯一。
(二) 國外文獻
國外地震保險法制研究之專書及論文雖亦不多，然數量較諸國內，仍具規模。美國方面， 於Westlaw 及LexisNexis 以標題”earthquake”及”insurance”搜尋，計有兩篇論文，分別 為Daniel L. Keller 於1996 年於Pacific Law Journal 發表之”INSURANCE; EARTHQUAKE INSURANCE--AVAILABILITY”一文及Brian Mattis 於Memphis StateUniversity Law Review 發 表之” Earthquake and Earth Movement Claims Under All-RiskInsurance Policies in the New Madrid Fault Zone”一文。另，專書方面，Martin F. Grace 等人編著, CATASTROPHE INSURANCE:CONSUMER DEMAND, MARKETS AND REGULATION 一書及針對亞州巨災保險所編撰之專 書ASIAN CATASTROPHE INSURANCE 均係代表著作。對土耳其之研究， 則有Eugene Gurenko 等 人所撰 EARTHQUAKE INSURANCE IN THURKEY 一書詳盡介紹土耳其地震保險制度與法規現狀及 Yazici 氏專針對土耳其TCPIP 制度撰寫之” The Turkish Catastrophe Insurance Pool (TCIP) and the Compulsory Earthquake Insurance Scheme”一文。.日本部分則以黑木松男 氏著，「地震保険の法理と課題」一書為代表著作。另，日本地震再保険株式会社2010 年出 版之《日本地震再保険の現状，對現行日本地震險制度及市場有完整研究。又，隅修三氏於東 北大地震發生後所撰之「安定的な地震保険制度の運営に向けた論議が必要」一文，則係了解 311 地震後日本對日震保險制度變革議論之最新文獻。而紐西蘭部分， EQC 本身及支持諸多 研究計畫，其報告均可於QEC 網站免費下載。整體言之，本研究選定之比較研究對象國家據研 究價值之參考資料，較諸國內，相對豐富，且兼具深度與時效性。四、研究方法
本研究兼採「保險理論經濟分析」、「比較法研究」及「問題解決導向」三主要研究方 法。自「保險理論經濟分析」言，因地震損失風險屬一巨災風險，其肇生財產損失，已如前述， 動輒以數十億美金計算。保險監理機關與保險公司縱或認識地震損失風險之特性，因技術之有 限性及風險之發生具有損失頻率低，但損失幅度大之特性，對此類損失風險及風險發生後之損 失幅度，成難準確預測。故於此類風險出現時，其可保性之有無，及保險公司對巨災風險之承 保能量及再保安排之可能性，常係建構一保險制度與商品之際首需考察者，故於可保性、承保 能量及再保險探討部分，本計畫亦擬自保險基礎之經濟理論，即保險之本質目的、大數法則、 風險組合與移轉等原理為研析。並藉經濟分析之成果作為基礎，以論述地震保險需為強制保險， 且需由政府擔任共同保險人角色之必要性。 就比較法研究以言，本文擬考察同樣面臨地震損失風險國家之地震保險制度及其立法， 研究對象包括美國(加州)、日本、紐西蘭及、土耳其及中國大陸。除依國別為個別研究外，並7 比較各國制度之差異與優劣，尤其各國地震保險之立法模式、政府參與方法或風險承擔之法律 規範及其係採強制保險或任意保險、係採商業保險或政策保險，當係研究與比較之重點。 至於問題解決導向之方法，則於本研究之後段使用。如前述，我國現行地震保險管理之 法規，因法規層級多屬行政命令性質，確有不足。加以現行制度存在缺乏專法規範，住宅地震 保險基金之規模不足，及未真正落實住宅火災保險強制加保及推動強制地震保險制度面臨之若 干障礙等問題，均需依一尋覓解決之道。本研究首就我國現行法規與制度之不足與問題為詳察； 次就各該問題於所研究之他國制度中，找尋一至數個可行之解決之道；最末，配合我國現行地 震保險之商品內容與市場實況，於數可選擇之方案中，擇於吾國最適採取者，並提出立法建言。 於方案選擇過程中，少量之成本效益分析方法，亦將使用。另，鑒於保險公司面對地震損失之 巨災風險時，恐有承保能量不足而不能或欲承保或縱承保可能因一次事故而失卻清償能力之情 形，本研究亦將試擬強制地震保險法，並主張以政府為共同保險人，俾於現行問題之解決，畢 其功於一役。
五、結果與結論
Comparative Studies on the Similarities and Diversities of the Legislations
Regarding Earthquake Insurance in Asia – Examples of Japan, New Zealand and
Taiwan
Kuan-Chun Johnny Chang
I.
INTRODUCTION
Earthquakes are one of the most threatening natural catastrophic risks for many Asian countries. On March 11, 2011, an 8.9 magnitude earthquake struck Northern Japan, which incurred property losses of 50 billion US dollars and approximately 210 to 300 billion in total economic losses (5.4% of the GDP)1. A month earlier, Christchurch, New Zealand was hit by a 6.1 magnitude earthquake that caused property losses between 3~5 billion US dollars and 15 billion in total economic losses (10% of the GDP)2. Taiwan, an island situated at the junction of the Eurasia Plate and Philippine Sea Plate, is also on a high-risk seismic belt, where damage associated with an earthquake is likely to be as tremendous as that in Japan or New Zealand. In fact, Taiwan’s 921 earthquake, a.k.a the Jiji earthquake, was of 7.3 magnitude. It occurred on September 21, 1999, and caused the death of 2,415 people and approximately US $10 to 12 billion in economic losses3. The pecuniary losses from
Associate Professor of Law and Business, National Chengchi University College of Law and College of Commerce; S.J.D.
(with distinction) Georgetown University Law Center.
1
Swiss Re, Lessons from Recent Major Earthquakes 3 (2012)[hereinafter the Swiss Re Report].
2
Id.
3 Weiming Dong et. al., Event Report, Chi-Chi Taiwan Earthquake 2 (2000) available at
8
natural disasters are much larger in advanced economies due to the accumulation and concentration of valuable capital, and the potential losses, are much higher than in low income countries.4
As one of the most commonly utilized risk financing mechanism, the insurance industry is playing a critical role in post-disaster financing of the countries affected. While insurance cannot replace lost lives and livelihoods, appropriate insurance and other risk transfer mechanisms can greatly accelerate the recovery process.5 Surprisingly, earthquake insurance penetration, in fact, is still quite low, even in some industrialized countries with high seismic risk. For example, the insurance industry indemnified no more than 17% for the disastrous event in Japan in March 2011.6 This is because the low-probability/high-consequence nature of catastrophic risk, like earthquake damages, poses difficult challenges for property owners, insurers and reinsurers. First, the high transaction costs affect the insurability of catastrophic risks.7 Second, particularly in the case of a catastrophic earthquake, the insufficient international diversification of risk constraints the capacity of insurers.8 Third, from the demand side, the low frequency of earthquake, compared to other natural catastrophes, is easy to incur the wrong perception that earthquake risk is not as high as it actually is, even in the risk-prone area.9 Owing to shrunken capacity and increased prices, far fewer policyholders purchase catastrophic coverage, unless required by financial covenants in debentures. Thus a large single earthquake plus a mismatch of supply and demand combine to truly shake the economy. This paper argues that, with some sort of government intervention, catastrophic risk results from an earthquake can be insurable and affordable. If businesses continue to bear substantial amounts of earthquake risk, political realities imply that a governmental bailout would be unavoidable in case of another catastrophic earthquake. In such a circumstance, the governmental intervention would likely by hastily constructed, involve larger amounts of aid, and would not have the same beneficial economic effects as would an existing program implemented by the government.
Japan, New Zealand and Taiwan have all established government intervention mechanisms. The Japanese government acts as a reinsurer via the Japanese Earthquake Reinsurance policy. New Zealand's Earthquake Commission, however, is a Government-owned crown entity that provides primary natural disaster insurance to the owners of residential properties in New Zealand. Taiwan established the Residential Earthquake Insurance Program, which provides excessive coverage just for homeowners. This paper will compare the similarities and differences of the
4
Nicole Laframboise and Boileau Loko, Natural Disasters: Mitigating Impact, Managing Risks 8 (2012) available at http://www.imf.org/external/pubs/ft/wp/2012/wp12245.pdf.
5 Swiss Re, New Swiss Re report reveals low earthquake insurance penetration globally, even in countries with high
seismic risk, http://www.swissre.com/media/news_releases/nr_20120117_low_earthquake_insurance.html (last visited Mar. 31 2013) [hereinafter Swiss Re Press Release].
6 Id. 7
For details, see Christian Gollier, Some Aspects of the Economics of Catastrophe Risk Insurance in CATASTROPHIC RISKS AND INSURANCE 18 (OECD ed. 2005).
8 Id, at 19. 9
9
government-intervened earthquake insurance systems in these three countries and examines whether one is better than another. Moreover, since not all of the above countries have made earthquake insurance completely, this paper will also analyze obstacles facing the successful creation of a compulsory earthquake insurance system while advocating its essentiality.
II.
ISSUES ASSOCIATED WITH USING INSURANCE AS A MECHANISM
OF MANAGING THE RISK OF EARTHQUKE DAMAGES
(I) Insurability
To establish the insurability of a particular risk, insurance companies generally review the following criteria:
(1) accessibility: the probability and severity of losses must be quantifiable; (2) randomness: the time at which the insured event occurs must be unpredictable and the occurrence itself must be independent of the will of the insured; (3) mutuality: numerous persons exposed to a given hazard must join together to form a risk community within which the risk is shared and diversified; (4) economic feasibility: for a risk to be insurable, private insurers must be able to charge a premium commensurate with the risk it covers (the “actuarially justified premium”). For the policyholder to be able to acquire the cover he needs (if insurance is not mandatory), premia must be adequate both for the insurer, who will assess whether it permits the insurance supplied to be profitable under given capital constraints, and for the insured, who should find it affordable and commensurate with his own perception of the risk.10
With regard to the accessibility, for LPHC (low probability high consequence) events, analysis of past events reveals wide variations in loss distribution; this hinders insurers’ ability to predict the severity and frequency of future events, and thus make them difficult to set actuarial insurance premium commensurate with such risks.11 Nevertheless, various high quality models aiming to predict the probability of natural catastrophes and losses they incur have been developed in recent years.12 Since current probabilistic risk assessment models available base on historical hazard activity and no sufficient scientific evidence supporting a deviation from the historic basis is available,13 statistical models based on a combination of historical data and physical modeling actually make the present-day financial risks associated with catastrophe for a specific location or
10 OECD, TERRORISM RISK INSURANCE IN OECD COUNTRIES 30 (2005). 11
Id, at 29.
12
See e.g. RMS, THE REVIEW: A GUIDE TO CATASTROPHE MODELLING 6-9 (2008) [hereinafter the RMS Review].
13 Peter Zimmerli, Insurance of Atmospheric Perils – Challenges Ahead in CATASTROPHIC RISKS AND INSURANCE 55
10
aggregated area better predictable and are useful in managing such risks.14 As modern earthquake catastrophe models adopt the very same methodologies, the earthquake risks are not inaccessible today.15
Moral hazard which refers to the effect of insurance on the insured’s incentives to reduce expected losses is the problem that can affect the randomness of a particular risk.16 The moral hazard problem is particularly crucial when insureds have dominant control over their risk.17 In that case, purchasers of insurance are presumed to have an informational advantage due to the better understanding of their risks type and the probability of loss, while insurers, facing the asymmetry of information, need to invest significant costs to acquire such information.18 However, in the case of natural disasters, particularly earthquake, given that the probability of catastrophic losses is not private information to the insured, he should have no control over the event incurring the risk so that the moral hazard problem is less likely to be seen in catastrophic insurance market.19 Although the insured may still have some control over the damage caused by the catastrophe (a.k.a. the ex post moral hazard), it is solvable through the enforcement of risk prevention norms (i.e. Stringent Building Code in earthquake-prone region) and discount premiums for insureds who invest in risk reductions.20
Most natural catastrophic risks concentrated in risk-prone regions have a tendency to incur cumulative losses due to the occurrence of a single event.21 Hence, natural catastrophe risks can be characterized as highly correlated risks.22 Once the insured event occurs, it will give rise to immense claims burdens in a single policy period.23 There is possibility that the loss potential of a single event is so enormous as to exhaust the domestic insurance market’s capacity to meet all of its obligations.24 Therefore, the prerequisite to pool individual risks is to avoid correlated risks to the extent possible and the insurability of natural catastrophes depends on the ability of the insurer to spread large correlated catastrophe risks over larger risk groups (i.e. reinsurance) or through other
14
Nicola Patmore, Using Insurance Catastrophe Models to Investigate the Economics of Climate Change Impacts and Adaptation 5 (2008) available at http://personal.lse.ac.uk/RANGERN/Patmore_IDRC08_catmodelling.pdf. Also see RMS Review, supra note 12, at 9.
15
For instance, EQECAT's Japan Earthquake Model unifies 13 centuries of earthquake history with today's cutting-edge science, and offers region-specific innovations in both hazard and vulnerability. See EQECAT, Japan Quake available at http://www.eqecat.com/pdfs/japan-earthquake-model-fact-sheet.pdf.
16
Scott E. Harrington & Gregory R. Niehaus, RISK MANAGEMENT AND INSURANCE 302 (1999).
17
Gollier, supra note 7, at 21.
18 V’eronique Bruggeman, COMPENSATING CATASTROPHE VICTIMS – A COMPARATIVE AND ECONOMIC APPROACH 86
(2010).
19
Scott E. Harrington, Rethinking Disaster Policy, Vol. 23 No. 1 Regulation 40, 41-42 (2000).
20 Gollier, supra note 7, at 21-22.
21 Martin Nell & Andreas Richter, Catastrophic Events as Threats to Society: Private and Public Risk Management
Strategies in RISK MANAGEMENT 332 (Michael Frankel et. al. eds. 2005).
22
Id.
23 Bruggeman, supra note 18, at 86. 24
11
instruments in the capital market.25 Worldwide catastrophe reinsurance service increases the underwriting capacity when earthquake insurance is not enough, as well as natural disaster perils which may not be anticipated.26 Through the diversification of global reinsurance, risks which are locally dependent may be internationally independent. 27 Moreover, in capital markets, catastrophe-linked securities (CAT Securities) function as an instrument which provide an additional layer of protection and allow catastrophe risks to be transferred from traditional insurance market to capital market.28 Hence, diversification does not seem to be a factor affecting the insurability of earthquake risks.
There is possibility that the accurate prediction of a devastating earthquake in risk-prone area is high. Therefore, an insurer cannot responsibly offer earthquake coverage without reserving adequate capital for the serious attack; otherwise it may face the erosion of its reserve for other natural disaster risks, which may ultimately bankrupt it. 29 Therefore, a responsible insurer will calculate premiums and reserves based on the high boundary of possible predictions.30 In that case, whether insurance coverage against earthquake and other natural catastrophe is available depends heavily on the willingness of the purchaser to pay a higher insurance premium.31 The affordability is undoubtedly an issue here. In addition, the price of catastrophe risk insurance in competitive markets is also determined by the demand and supply of such products. The following parts will probe into issues associated with the demand and supply side of catastrophe risk insurance.
(II) Lack of Demand
Empirical studies indicate that even if catastrophe coverage is offered at actuarially fair premiums in competitive markets, given its low-probability, high loss nature, demand for coverage remains low.32 First, “those with a higher perceived vulnerability to future catastrophic losses are more likely to acquire first-party insurance than those who believe that a catastrophe is unlikely to affect their home or their community”.33 The comprehended probability of loss was a crucial factor in deciding the purchase of catastrophe insurance.34 “Perceived vulnerability, however,
25
Bruggeman, supra note 18, at 86-87.
26
Earthquake Engineering Research Institute, Earthquake Reinsurance, https://www.eeri.org/earthquake-reinsurance/ (last visited Mar. 23 2013).
27
J. David Cummins, Reinsurance For Natural and Man-Made Catastrophes in The United States: Current State Of The
Market And Regulatory Reforms, Vol. 10 No.2 Risk Mgnt. & Ins. Rev. 179, 183 (2007).
28 OECD, RISK AWARENESS, CAPITAL MARKETS AND CATASTROPHIC RISKS 105 (2011). 29
Martin Grace et. al., CATASTROPHE INSURANCE: CONSUMER DEMAND, MERKETS AND REGULATION 74 (2003).
30 GFDDR, Catastrophe Risk Insurance Pricing (2011) available at
http://www.gfdrr.org/sites/gfdrr.org/files/documents/DRFI_CatRiskPricing_Concept_Apr11.pdf..
31
Bruggeman, supra note 18, at 87.
32 Susan K. Lauary et. al., Insurance Purchase for Low-Probability Losses 18 (2008) available at SSRN:
http://ssrn.com/abstract=1090266.
33
Michael Faure & Veronique Bruggeman, Catastrophic Risks and First-Party Insurance, 15 Conn. Ins. L.J. 1, 21 (2008).
34 Paul Slovic, Perceptionof Risk, 236 Science New Series 280, 285 (1987), available at
12
constitutes a problem in the case of low-probability high-consequence events like [earthquake]…Overwhelming evidence from psychologists and behavioral law and economics indicates that those events are systematically misjudged.” 35
Potential victims choose not to purchase coverage because they do not consider the risk of loss to be sufficient for them to acquire insurance protection.36 In fact, in lack of recent significant earthquake, many may not even realize the seismic risk in their area.37 “The lack of demand is attributed to ineffective information filtering, particularly with probabilistic information regarding catastrophes.”38
Second, the perception of potential victims that the state or the government will provide them with ex post disaster relief regardless of insurance coverage dilutes their incentives in voluntarily purchasing first-party insurance.39 In the absence of insurance, the government may find it difficult to resist the political pressure to provide compensation.40 Those exposed to the catastrophic risk will retain the insurance premium in their pocket and free-ride on the government if they are certain the ex post State compensation program is in place.41
Potential victims of catastrophe risk view insurance as an investment. Psychological studies show that people may prefer uncertain losses rather than the certain loss of paying the premium, and tend to insure against high-probability, low-damage events due to the high probability of pecuniary return.42 Very likely, potential victims who purchase first-party insurance against the risk of catastrophic losses but did not experience losses that trigger claims will, within a few years, terminate their insurance contract or not the renew it.43
Fourth, as insurance premiums should be compatible to the underlying risks with respect to the various risk zones and types of construction, households facing budget constraints may not have interest and/or ability to voluntarily purchase adequate insurance coverage against catastrophic losses.44 Contrasting to the expected utility model “where the demand for insurance depends on the premium relative to the expected loss, demand under this scenario depends only on the premium for a given amount of coverage”.45
35 Faure & Bruggeman, supra note 33, at 21. 36
Id.
37
Anne Obersteadt, Insurance Regulator Strategies to Reduce Earthquake Insurance Barriers 4 (2012) available at http://www.naic.org/documents/cipr_earthquake_insurance_research_report.pdf.
38
Faure & Bruggeman, supra note 33, at 26.
39
Roger Van den Bergh & Michael Faure, Compulsory Insurance of Loss to Property Caused by Natural Disaters:
Competition or Solidarity, Vol. 29 No.1 World Competition 25, 31 (2006).
40 Harrington, supra note 19, at 43-44. 41
Bergh & Faure, supra note 38, at 32.
42 Faure & Bruggeman, supra note 33, at 25. 43 Bruggeman, supra note 18, at 108. 44
Oliver Mahul & Emily White, The Economics of Disaster Risk, Risk Management and Risk Financing – Earthquake Risk Insurance 11 (2012) available at
http://wbi.worldbank.org/wbi/Data/wbi/wbicms/files/drupal-acquia/wbi/drm_kn6-2.pdf.
45
13
(III) Lack of Supply
While catastrophe risks are, as indicated, prima facie insurable, there are still problems on the supply side. Except for the lack of demand, some insurers are reluctant to provide coverage for property damage caused by natural catastrophes. Their primary arguments still based heavily on the insurability:
First, natural disasters (i.e. hurricane, earthquake…etc.) usually concentrate on specified geographical area and are highly correlative.46 For such correlated risks, the insurer is concerned about the magnitude of claims in a single disaster occur.47 Lessons from past catastrophes revealed that a significant number of insurance companies became insolvent as a result of such catastrophic losses due to the disasters’ nature of lack of geographical diversity.48 At as a result, it is questionable that how many property insurance policies insurers are willing to offer in risk-prone regions.49
Second, since insurance risks must be calculated based scientific or historical data, the absence of such data and the present imperfect scientific knowledge leads to “the supply deficiencies of first party catastrophe coverage”.50 The shortage of scientific data for earthquake risks building a model for risk assessment is more like a myth than mathematics.51 Such uncertainty which impact the predictability regarding both the probability of a catastrophic event and its losses result in uninsurability of a specific catastrophic event or in a specific risk-prone area.52 Although such uncertainty can still be insured be by charging risk premium two to ten times higher than ordinary property insurance,53 two problems remain: (1) a higher insurance premium directly influences the affordability of catastrophe insurance and hence decreases the demand; and (2) restrictions or caps imposed by insurance regulations which bar insurers from applying high premiums to catastrophic risks also affect insurers’ willingness to supply.54
Third, as mentioned earlier, concerns the underwriting capacities of insurance companies particularly in the case of catastrophic events.55 “Reinsurance helps insurance companies underwrite large risks, limits liability on specific risks, increases capacity, and shares liability when
46 Paul Kleindorfer & Howard Kunreuther, Challenges Facing the Insurance Industry in Managing Catastrophic Risks in
THE FINANCING OF CATASTROPHE RISK 156 (Kenneth A. Froot ed. 1999).
47
Id.
48 Faure & Bruggeman, supra note 33, at 28. 49 Kleindorfer & Kunreuther, supra note 46, at 148. 50
Bruggeman, supra note 18, at 111.
51 Michelle E. Boardman, Known Unknowns: The Illusion Of Terrorism Insurance, 93 Geo. L.J. 783, 817 (2005). 52 Howard Kunreuther, Robin Hogarth & Jacqueline Meszaros, Insurer Ambiguity and Market Failure, 7 J. Risk &
Uncertainty 71,83 (1993).
53
Kleindorfer & Kunreuther, supra note 46, at 148.
54 Michael Faure & Ton Hartlief, INSURANCE AND EXPANDING SYSTEMATIC RISKS 83-86 (2003). 55
14
claims overwhelm the primary insurer's resources”.56 Nevertheless, when mega or multiple catastrophic events occur, insurers might not have purchased sufficient reinsurance, or reinsurance providers might not have sufficient loss absorbency to meet their existing obligations.57 After a catastrophic loss, the uncertainty regarding the frequency or magnitude of future events might make reinsurers reluctant to reinsure catastrophic event because of the difficulty in pricing catastrophe insurance.58 In addition, “reinsurance prices may increase after major catastrophes as reinsurance companies attempt to restore their financial condition through higher revenues or coverage restrictions”; otherwise, reinsurance capacity may be diminished and reinsurers might limit availability of future catastrophic reinsurance coverage.59 Since reinsurance provides additional capital to insurers and thus increases underwriting capacity, without reinsurance, insurers could not limit the exposure to severe liability and had no choice but to exclude coverage.
(IV) Analysis
From the preceding analyses, the insurability of the catastrophic earthquake risk directly impacts the insurers’ willingness to provide coverage. From the perspective of commercial insurer, although puzzles that affect the insurability can be tackled, others remain unsolvable. Uncertainty in risk assessment has been gradually reduced through the development of modern catastrophe modeling. The moral hazard has never been an issue in the case of natural catastrophe as the insured has no advantageous information over the insurer. Problems remain with the supply side are the capacity of insurer and even the reinsurer, and the affordability of catastrophe insurance. As to the former, even if domestic insurers may diversify catastrophe risks they assume through international reinsurance or other instruments in the capital market, owing to the unpredictability nature of losses of the catastrophic event, there is no guarantee that extremely large losses incurred in a single or multiple events are sufficiently financed by the insurance, reinsurance and catastrophe bonds.60 When such losses exceed the insurance system’s and capital markets’ capacity, the only approach to compensate the shortage is to rely on ex post public borrowing or government financing.61 Otherwise, one single catastrophic event can trigger the crisis in the voluntary insurance market in which insurers are no longer willing to underwrite catastrophe risks. 62 The government intervention can serve as a useful stopgap and ensure the availability of coverage
56 Faure & Bruggeman, supra note 33, at 29.
57 Anne Gron, Insurer Demand for Catastrophe Reinsurance, in THE FINANCING OF CATASTROPHE RISK 23 (Kenneth A.
Froot ed., 1999).
58 Maggie Starvish, Doomsday Coming for Catastrophic Risk Insurers? http://hbswk.hbs.edu/item/6774.html (last
visited Apr. 3 2013).
59 United States General Accounting Office, Catastrophe Insurance Risks 9 (2003) available at
http://www.gao.gov/assets/240/239883.pdf.
60
Swiss Re Report, supra note 1, at 13.
61
Id.
62 Carolyn Kousky, Managing the Risk of Natural Catastrophes: The Role and Functioning of State Insurance Programs 13
15
because the government would usually be able to provide much more capacity than private sector.63 In regard of the affordability, it is argued that governments can keep the catastrophe insurance stay affordable through legislations.64 When the government plays a role as a reinsurer, it charges an actuarially fair premium for its intervention so that reinsurance is an adequate resolution to the uninsurability problem result from affordability.65
With respect to the lack of demand, since the potential victims of the catastrophe risk are still risk averse to large losses and are willing to pay a premium to have such risks transferred, they do not purchase adequate coverage simply because they are in lack of correct information regarding.66 Through legislation, the government may make the catastrophe insurance or earthquake insurance compulsory in order to cure the asymmetry of information.67 The compulsory insurance scheme also marginalizes the lack-of-incentive problem. Moreover, the government intervention in mandating the potential victims to purchase first-party insurance helps to reduce the costs of government’s ex post disaster relief as some of the costs of offsetting the damages have been internalized.68
Given that the government intervention in financing catastrophic losses is indispensable for maintaining the capacity of private insurance market and the affordability of the first party catastrophe risk insurance, it is make sense to advocate the public-private partnership in the provision of catastrophe coverage.
III. EARTHQUAKE INSURANCE IN ASIA -- STUDIES ON THE SYSTEM
IN JAPAN, NEW ZEALAND AND TAIWAN
The government can adopt several different approaches in crafting policies to involve in the management of catastrophe risks and compensation to attendant losses:
First, the government can rely primarily on the private insurance market. Second, the government can provide direct compensation to the catastrophe victims. Third, the government can institute mandatory comprehensive insurance. Fourth, the government itself can provide catastrophe insurance. Fifth, the government can share the catastrophe risk with the private sector by acting as a reinsurer of last resort. Sixth, the government can finance catastrophic damages through an additional insurance layer above the insurers’ own financing.
63
Id, at 14; also see Nell & Richter, supra note 12, at 332.
64 Véronique Bruggeman, Michael Faure &Tobias Heldt, Insurance Against Catastrophe: Government Stimulation of
Insurance Markets for Catastrophic Events, 23 Duke Envtl. L. & Pol’y 185, 219 (2012).
65
Id, at 220.
66
Bruggeman, supra note 18, at 119.
67 Id. 68
16
Finally, new forms of government intervention, such as acting as a lender of last resort, have been proposed.69
Government intervention can also be a mixture of any of the above schemes.70 In addition to the ex post compensation, Japan, New Zealand and Taiwan, the three earthquake risk prone area, happen to apply different measures.
(I) Japan Earthquake Reinsurance (JER)
On June 16 1964, the Niigata Earthquake (M 7.5) caused 26 dead, 447 injured, and incurred damage to residences, 1,960 were completely destroyed, 6,640 were partially destroyed, 15,297 were flooded and 67,825 were partially damaged.71
Facing such situation, the Minister of Finance at that time, convened a general meeting of the Insurance Council and consulted with them concerning concrete measures in order to contribute to the stabilization of the livelihood of the nation shall the earthquake disasters take place.72 The Insurance Council considered issues concerning “to cover or not to cover earthquake disaster, insurable property and losses to be covered, prevention of adverse selection, ways for the nation to be involved, the amount to be insured, the limit of total payments, the sharing of liability between the Government and private insurance companies, etc.”73 The Insurance Council eventually delivered a report on an earthquake insurance system in 1965.74
For implementing an earthquake insurance system, the “Law concerning Earthquake Insurance (the LEI)” and its Enforcement Order, and “Earthquake Reinsurance Special Accounting Law (the ERISAL)” and its Enforcement Order was promulgated in 1966.75 Issues regarding the detail of the earthquake insurance coverage, standards of payments, caps of underwriting, reinsurance, accounting treatment were specifically addressed in the new legislations.76 The latest amendment of the LEI was made on 1999.77
Pursuant to Article three of the LEI, the Japan Earthquake Reinsurance Co Ltd (JER), established with share capital of 1 billion yen by 20 domestic Japanese non-life insurance companies
69 Bruggeman, Faure & Heldt, supra note 64, at 187-188. 70
Id, at 187-188.
71
General Insurance Rating Organization of Japan, EARQUAKE INSURANCE IN JAPAN 29 (2011).
72 Id. 73 Id. 74
Id.
75 Matsuo Kuroki, JISHIN HOKEN NO HOLI TO KADAI [Issues and Jurisprudence of Earthquake Insurance] 46-47 (2003). 76 Id.
77
Law concerning Earthquake Insurance,
http://law.e-gov.go.jp/cgi-bin/idxselect.cgi?IDX_OPT=3&H_NAME=&H_NAME_YOMI=%82%A0&H_RYAKU=1&H_CTG=1 &H_YOMI_GUN=1&H_CTG_GUN=1&H_NO_GENGO=S&H_NO_YEAR=41&H_NO_TYPE=2&H_FILE_NAME=S41HO073 (last visited Apr. 5 2013).
17
on May 30, 1966, covers losses to residential buildings and contents result from earthquake, volcanic eruption or tsunami including fire following such an event.78 Premium rates vary in accordance with location, building age and standard.79 Such design set insurance premiums at the standard affordable for households and businesses. In 2009, approximately 12.3 million policies were outstanding with aggregate insured values of USD 1 098 billion, roughly USD 90000 per policy.80 About 46% of residential property insurance policies included earthquake insurance coverage.81
With regard to the liability sharing mechanism between the first party insurers, the JER and the Government, private insurers and the JER pay first losses per event up to an aggregate USD 1.4bn.82 The Japanese government pays half of the losses exceeding USD 1.4 billion (115 billion Yen) and 95% of losses exceeding USD 10.5 billion (1925 billion Yen) up to USD 66.3 billion (871 billion Yen).83 Government liability within the program is limited to USD 57.5 billion.84 Insurers and JER’s combined liability is capped at USD 8.7 billion. The liability of JER and private insurers was lowered from USD 14.4 billion to USD 8.7 billion (724 billion Yen) after the devastating earthquake in March 2011 to alleviate private insurers’ concern for future earthquake payments.85 In fiscal year 2009, JER collected USD 0.772 billion in net premiums and had assets of USD 11.670 billion.86 The Japanese government remains the insurer of last resort for rare loss events over USD 66.3 billion, although the earthquake law stipulates that insurance payouts can be reduced in accordance with the proportion of total claims to the maximum limit, which is 5.5 trillion Yen.87 Amount of the risk to be carried by the commercial underwriters is determined by the Cabinet Order, while the amount of year.88 In case the total amount of the necessary indemnification exceeds this limit, the amount to be paid to the individual insureds will be reduced proportionately.89
(II) New Zealand Earthquake Commission
In 1933, New Zealand introduced the Earthquake Commission (EQC) which provides natural disaster insurance for residential property, administers the Natural Disaster Fund, and funds research and education on natural disasters and ways of reducing their impact.90 Part I of the Earthquake Commission Act (EQC Act) of 1933 provides for the organizational structure, function, and power of
78
Japan Earthquake Reinsurance Co Ltd, http://www.nihonjishin.co.jp/disclosure/2011/en_05.pdf (last visited Apr. 6 2013).
79 Yasufumi Takashi, JISHIN HOKEN SEIDO [The Earthquake Insurance System] 131-132 (2012). 80
Id, at 38-39.
81
Swiss Re Press Release, supra note 5.
82 Id, at 169. 83 Id. 84 Id. 85 Id, at 179. 86 Id, at 64. 87 Id, at 169. 88 LEI, Art. 3 (1999). 89 LEI, art. 4 (1999). 90
18
the EQC as well as the management of the Natural Disaster fund.91
Part II of the EQC Act The coverage is compulsory whenever fire insurance is purchased.92 The premium for natural disaster coverage is paid to private insurers but then sent to the Earthquake Commission, a state entity, which administers the natural disaster insurance, including processing the claims and organizing reinsurance.93 To make EQC affordable, a single rate of premium with maximum limit applies to all homeowners. “For contracts of fire insurance made on or after 1 February 2012, EQCover costs fifteen cents for every $100 insured (0.15%) where the period of insurance is one year. The maximum for a one-year period is $150 for cover of $100,000 on the dwelling and $30 for cover of $20,000 on personal belongings.”94
EQC also provides excess coverage based on the number of dwellings in one building. Where the insured property contains only one dwelling, the excess percentage of claim would be 1% and the minimum and maximum amount payable is NZD $ 200 and NZD $ 1150 respectively.95 On the occasion that there are more than one dwelling are included in a single property, the excess payable amount is as follow: (1) For damages to building, NZD $200 multiplied by the number of dwellings in the building or 1% of the amount payable, whichever is the greater; (2) For damages to Land, NZD $500 multiplied by the number of dwellings in the residential building which is situated on the land, or 10% of the amount payable, whichever is the greater, to a maximum of $5,000; and (3) For damages to both a dwelling and personal property , when a person makes a claim for damage to both a dwelling and personal property located in that dwelling and the damage is caused by the same natural disaster, a single minimum payment of $200 applies across both claims.96
For the purpose of ensuring the availability of EQcover to most homeowners, the EQC Act also imposed restrictions on the EQC’s power to limit the coverage or to cancel the policy. Article 28 of the EQC Act requires a prior notice be given to the insured if the EQC determine to cancel or limit insured’s EQCover.97
EQC can only cancel or limit cover in specific circumstances as manifested in Schedule 3 of the Earthquake Commission Act.98 EQC bears the duty to advise, in writing, any person affected by the cancellation or limitation of EQCover and explain why it has done so. The
91 EQC Act of 1933, Art. 4-17 (2008). 92
EQC Act of 1933, Art. 18 (2008).
93
EQC Act of 1933, Art. 23-24(2008).
94 EQC, EQCover: THE INSURER’S GUIDE 8 (2012) available at
http://www.eqc.govt.nz/what-we-do/eqc-insurance/insurers-guide.
95
Id.
96 Id. 97
EQC Act of 1933, Art. 28(2008).
98 According to Section 4 of the Schedule of the EQC Act, the coverage can only be cancelled where—“(a) the
Commission settles a claim in respect of any property by payment of the full amount to which that property is insured under this Act; and (b) the property in respect of which the claim is settled is neither replaced nor reinstated to the satisfaction of the Commission.”
19
notice continues to apply even if a property is sold.99
Last but not least, EQCover is government guaranteed.100 In case that EQC receive a very large number of claims after a mega catastrophic earthquake that exceed its capacity to meet all the obligations from the Natural Disaster Fund and its reinsurance, the Government will pay the shortfall.101
(III) Taiwan Residential Earthquake Insurance Fund (TREIF)
After the Ji-Ji earthquake on 21 September 1999,the legislature passed amendments to Article 138-1 of the Insurance Law to include provisions on underwriting residential earthquake insurance by the insurers and establishment of a government -funded mechanism for assuming excessive losses caused by earthquake risk.102 The Taiwan Residential Earthquake Insurance Fund (TREIF) was therefore created as a public non-profit organization on 9 July 2001, and began operation on 1 April 2002.103 While the TREIF insures residential buildings against fire, explosion, landslide, land subsidence, land movement, land rupture, tidal wave, surge and flood caused by earthquake, Policies are offered by insurance companies.104 At the end of 2012, TREIF had approximately 2.4 million policies in force covering 30.11% of all households with USD 98.3 billion (NTD $4.04 trillion) sum insured (average USD 42 800 per policy).105
On December 1, 2005, The Financial Service Commission enacted amendments to the "Enforcement Rules for Coinsurance and Risk Assumption Mechanism of
99
EQC Act of 1933, Art. Schedule 3 § 4(2008).
100
EQC, EQC Insurance, http://www.eqc.govt.nz/what-we-do/eqc-insurance (last visited Apr. 7 2013).
101
Id.
102 Insurance Act (Taiwan), Art. 138 (2012) [“(1)Non-life insurance enterprises shall underwrite residential earthquake risk, and shall do so by means of the risk spreading mechanism established by the
competent authori ty. (2)The Taiwan Residential Earthquake Insurance Fund shall be established to manage the risk spreading mechanism referred to in the preceding paragraph. The portion of risk that exceeds the co -insurance underwriting assumption limit for non -life insura nce enterprises shall be assumed by the Tai wan Residential Earthquake Insurance Fund, cede to domestic and/or foreign reinsurers, be assumed by the manner prescribed by the competent authority or assumed by the government. (3)With respect to the risk spre ading mechanism under the preceding t wo paragraphs, the competent authority shall prescribe regulations governing the risk assumption li mits, insured amounts, insurance premi um rates, provision for various reserve funds, and other compliance matters. (4)T he competent authority shall prescribe regulations governing the Taiwan Residential Earthquake Insurance Fund's articles of incorporation, business scope, funds allocations, and other administrative matters. (5)W hen the occurrence of a major earthquake re sults in payable claims that exceed the amount of funds accumulated in the Taiwan Residential Earthquake Insurance Fund, in order to safeguard the interests of insured the Fund ma y as necessary request the competent authority and the Ministry of Finance to jointly apply for Executive Yuan’s approval of collateral provided by the national treasury to obtain the necessary source of funding. ”]
103 TRIEF, Introduction to the TRIEF, http://www.treif.org.tw/e_contents/A_aboutTREIF/A1.aspx (last visited Mar. 9
2013).
104
Id.
105 TRIEF, Business overview: Finance, http://www.treif.org.tw/e_contents/B_financial/B1.aspx (last visited Mar. 9
20
Residential Earthquake Insurance," under which the risk-sharing system was adjusted from four tiers to two tiers. On December 1, 2005, the competent authority promulgated the amended "Enforcement Rules for Coinsurance and Risk Assumption Mechanism of Residential Earthquake Insurance (Risk Spreading Rule)" under which the risk -bearing system was adjusted from four tiers to two tiers.106 The latest amendment of which was introduced on January 1 2013.107 Pursuant to the Risk Spreading Rule, Insurance the TREIF The program’s liability structure is as follows: (1) Local property & casualty insurance companies take up the first NTD $3 billion ( USD $100 million ) in losses.108 (2) TREIF is liable for the next NTD $67 billion (USD $ 2.25 billion).109 (3) Losses to be assumed by the TRIEF are diversified to the private reinsurance and capital markets upto NTD $ 53 billion (USD 1.75 billion).110 (4) The final portion assumed by TREIF between NTD $ 53 billion to $ 67 billion is retained by the Taiwanese government.111 Should losses incurred by a single catastrophe exceeds the capacity of the TREIF, the government guarantee is ultimately provided.112
In addition, the premium of the earthquake insurance has been set at very affordable level by charging flat premium.113 From April 1, 2009, the annual flat premium for the insurance was reduced from NT D$1,459 to NTD $1,350 (approximately USD$ 45), with a maximum sum insured of NT D $1.2 million (USD $ 40000) per policyholder.114 While effective from January 1, 2012, the maximum sum insured per policyholder was increased to NT D $ 1.5 million (USD$ 50000) and the maximum contingent living expense was also increased to NT D $200,000 (USD $ 6667).115
(IV) Comparison and Analysis
i. Comparison
In comparison, although Japan, New Zealand and Taiwan all have in place an earthquake insurance mechanism established in accordance with the public-private-partnership model, the three
106
TRIEF Introduction, supra note 103.
107 Enforcement Rules for Coinsurance and Risk Assumption Mechanism of Residential Earthquake
Insurance, Art. 10 (2013).
108
Enforcement Rules for Coinsurance and Risk Assumption Mechanism of Residential Earthqu ake Insurance, Art. 3(1) (2013).
109
Enforcement Rules for Coinsurance and Risk Assumption Mechanism of Residential Earthquake Insurance, Art. 3(2) (2013).
110 Enforcement Rules for Coinsurance and Risk Assumption Mechanism of Residential Earthquake
Insurance, Art. 5 (1)(2013).
111
Enforcement Rules for Coinsurance and Risk Assumption Mechanism of Residential Earthquake Insurance, Art. 5(2)(2013)
112 Enforcement Rules for Coinsurance and Risk Assumption Mechanism of Residential Earthquake
Insurance, Art. 5(3)(2013).
113
TRIEF Introduction, supra note 103.
114 Id. 115
21
systems have similarities and differences from one another. The following chart provides an overall comparison amongst the JRE, the EQC and the TREIF.
Items Programs to
Compare
JER EQC TREIF
Risks Covered
Losses arising concerning the object Insured due to fire, destruction, burial or flood directly or indirectly caused by earthquake, volcanic eruption or tsunami.
Losses cause from Earthquake or natural disaster (i.e. flood ). Losses incurred by Earthquake Area where coverage is provided
Domestic Domestic Domestic
Entity bearing the liability of indemnity. Private Insurers JER (formed by private insurers) Government EQC (jointly capitalized by the government and private insurers) Private P & C insurers TREIF (funded by the government) Government Duties of private insurers Sale of earthquake insurance Claim adjustment Payment of Sale of earthquake insurance only Sale of earthquake insurance Claim adjustment Payment of
22 proceeds Partial Loss Sharing proceeds Partial Loss Sharing Role of the government Partial Loss sharing & Reinsurance Unlimited guarantee to the EQC Partial Loss sharing , Reinsurance and unlimited guarantee to the TREIF Burden of the Treasury
None. Yes. Yes.
Caps of compensation in a single event 5.5 Trillion Yen (USD $ 55 billion) Unlimited NTD 70 billion (USD $ 2.3 billion) Compulsory or voluntary Voluntary Building: Compulsory when voluntarily purchasing Fire Policy Personal Belongings: Voluntary Voluntary
Rate of premium Premium rates vary in accordance with location, building age and standard.
Flat (0.05%) Flat (0.12%)
