Reassessing typhoon risk in Japan

Recent typhoon activity in June has been a wake-up call for the (re)insurance industry. RMS’ Margaret Joseph discusses some key learnings from the 2018-19 events.

Japan lies in the northern reaches of the world’s most active tropical cyclone (typhoon) basin; the western North Pacific. Aspects of Japan’s geography, not least its position, make it susceptible to typhoons; and as one of the worlds’ largest insurance markets, Japan has significant insured exposure at risk to typhoons.

Recent typhoons in Japan have resulted in significant insured loss. Table 1 shows the paid claims for typhoons Jebi and Trami in 2018, and typhoons Faxai and Hagibis in 2019 from the General Insurance Association of Japan (GIAJ), which represents insurers in the private primary company market in Japan.

The insurance loss in Japan in 2018 also saw high insured losses from non-typhoon flooding. In July 2018, a stationary frontal system over Japan, caused claims of $1.8bn (GIAJ), with industry players indicating that insured losses could approach $4bn.

Just two years before Jebi and Trami in 2018, we had released the RMS Japan Typhoon HD Model—a complete model rebuild updating all aspects of typhoon modeling; from the stochastic track model, hazard and vulnerability modeling, as well as exposure and financial modeling.

This model was calibrated with an extensive body of claims totalling over two trillion yen (in 2016 values), including collaborating with scientific leaders and industry partners. So, in light of these new events, what did we do and what did we learn?

Losses for all major natural catastrophes take time to stabilize. Once claims had settled for Typhoon Jebi, RMS received a significant body of claims from the Japan primary market, working with companies who submitted claims to aid in the analysis and interpretation. Separately, RMS received claims from the non-typhoon flooding in July 2018, together with claims from 30 non-typhoon events since 2000.

Other key data sources included our detailed field reconnaissance and work undertaken with local academics and engineers in Japan. RMS field reconnaissance visited impacted sites in the immediate aftermath of Typhoon Faxai and Hagibis. It can be very challenging but RMS modelers in the field provide details about the peril hazard that cannot solely be ascertained from photographs of the severest damage circulated in the media. Modelers see damage first-hand and review in context of learnings about the event.

”Losses for all major natural catastrophes take time to stabilize”

Visits continue in the months and years following the events as we continue to evaluate the damage, and the repairand restoration. Following Faxai and Hagibis, modelers from our Tokyo office continued to visit areas around Tokyo Bay after the initial reconnaissance. Within a year after Jebi, our lead vulnerability modeler returned to the Osaka region. He conducted field surveys, spoke directly to claims adjusters in companies, and met local engineers and academics, some of whom modelers have been conversing with in detail on these events, and some of whom had worked with us in model development.

For the model update, RMS undertook a critical review from hazard and vulnerability, through to loss estimation, incorporating all learnings to ensure the model is well calibrated and continues to reflect the latest market conditions, as well as building performance relative to typhoon hazard. A new non-typhoon flood module is included to provide a complete view of flooding in Japan—both typhoon and non-typhoon. Together with the existing typhoon wind component of the model, they constitute the Japan Typhoon and Flood HD model. RMS has had a typhoon model for Japan for over 25 years.

This commitment to ground truth, not just in the immediate aftermath, but over time to evaluate how rebuilding occurs is important in evaluating the typhoon and flood risk. Even with a new model release in 2016, significant new events will bring new learnings, and RMS through the Japan Typhoon and Flood HD model brings to the market the very latest insight.