Insurance Forum Japan 2019
Venue: Shinagawa Prince Hotel, Tokyo

Contribution to Building a Resilient Economy～ Representing the General Insurance Association of Japan (GIAJ) ～June 5 th, 2019
© 2019 Sompo Risk Management Inc. All Rights Reserved.

Outline
How can insurance industry contribute to building economies that areresilient to climate change in the context of filling the protection gap
and investing in infrastructure projects to pay due attention to its
impact on environment?
1.
2.
3.
4.
5.

Activity of the General Insurance Association of Japan in 2018 – 2019 (for reference)
Disaster in Japan
Contribution to the reconstruction
Examples of contribution to tackling with natural disasters
Risks and Investment Return (need to well-balanced)

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Activity of the General Insurance Association of Japan in 2018 - 2019
Whilst uncertainty over global economic prospects is rising, digitalization ischanging the fundamental structure of the industry. As a result, theenvironments surrounding individuals and corporations are also expected to go
through dramatic changes. Since last April, the GIAJ has steadily been
implementing its Eighth Mid-Term Business Plan with particular focus oncontributing to the realization of SDGs and "Society 5.0".
(1) Contributing to the realization of a sustainable society (achieving SDGs)(i) SDGs Forum(ii) Responding to natural disasters
a. 'Exploration for Disaster Prevention'
b. Disaster prevention initiatives
・On March 2nd and 3rd, the GIAJ participated in the "Outdoor Festival”, an outdoor
exposition event held Osaka Expo Commemoration Park. The GIAJ set up a booth・On February 9th, we took part in a special TV program on natural disaster prevention.

(2) Contribution to the realization of "Society 5.0”(i) Measures to address advances in self-driving technology(ii) Response to emerging risks and enhancement of cybersecurity(iii) Measures on harmonization, standardization and enhancement of the operational efficiencyof our industry(3) Support to the Task Force on Climate-related Financial Disclosures (TCFD)
Source: The GIAJ Chairman's Statement（March 22, 2019）http://www.sonpo.or.jp/en/statements/2019/1903_02.html (accessed June 6th 2019)
Support to the Task Force on Climate-related Financial Disclosures (May 16 2019) http://www.sonpo.or.jp/news/release/2019/1905_01.html (accessed June 6th 2019)

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Disasters in Japan

In the last decade several severe natural disasters
have hit Japan, creating significant economic
strain on the country.
 We recognize it might be difficult to provide general insurance stably due to the natural
catastrophes such as typhoons, floods, heavy rains and insurance payment for that and increaseof insurance premiums.

 We also recognize that social expectations to non-life insurance industry for contribution to therealization of sustainable society through providing activities which could benefit to prevent orreduce damage from natural disasters as the risks of natural disasters are getting bigger.
 Growing number of major earthquakes and eruptions, as well as increasingly fierce typhoons
and heavy rains have hit Japan in recent years. We have contributed to the reconstruction ofpeople’s lives and businesses of those who suffered damage from the disasters by quickly
making claim payments to them.
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Disasters in Japan

Multiple and large scale disasters hit Japan in 2018
 Northern Osaka Earthquake (in June)(M 6.1)
 July torrential rainfall (in July) (Heavy rain in western Japan)
 Typhoon No.21 (in August) (Jebi)
 Hokkaido Iburi earthquake (in September) (M6.7)
 Typhoon No.24 (in September) (Trami)( The claim number has gone over more than the Great East Japan earthquake in March 2011 )Year 2018

Total amount of claim
payments
inmillionsof yen）
（1Northern Osaka Earthquake(in June)

144,129

103,320

2

July torrential rainfall (in July)(Heavy rain in western Japan)

55,320195,595

857,284

1,067,806

46,59633,8233
4
5

Source: Sompo Japan Nipponkoa Insurance Inc.

Number of claim
payments※Typhoon No.21(in August) (Jebi)
Hokkaido Iburi earthquake(in September) (M6.7)
Typhoon No.24(in September) (Trami)
Total

412,707

306,091

1,516,036

1,706,635

Great East Japan Earthquake 2011

752,249

1,208,107

Source: The GIAJ News Release
1, 4：（2018.12.20 released） 2,3,5：（2019.5.20 released） ※：（2021.12.1 released）

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Contribution to the reconstruction
 Through making swift claim payments, the general insurance industry did its utmost to help victims put
their lives back in order and to assist the affected areas in their recovery and reconstruction.
 In tandem with the risk of natural disasters hitting our land becoming ever higher, people’s expectations of
the general insurance industry to contribute to the realization of a sustainable society through advancing
risk management and pursuing risk prevention and mitigation are becoming ever greater.
 Based on solid intelligence regarding risks and supported by our determination and pride in being part of
the general insurance industry, the GIAJ will continue to respond appropriately to various societal changes.
By providing coverage and services that contribute to building a safer, more secure society, we arecommitted to helping our industry fulfill its role of supporting Japan as an integral part of the nation’ssocial infrastructure.

Source: Sompo Japan Nipponkoa Insurance Inc.

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Examples of contribution to tackling with natural disasters

JapaneseEarthquake
Insurance System

The Earthquake Insurance is an insurance product exclusively for earthquake disasters.
It indemnifies against damage caused by fire, destruction, burying or washing away,
resulting from an earthquake or volcanic eruption or from a tsunami following either ofthese events. For the purpose of stabilizing the livelihoods of the affected by earthquakes,
the government reinsures the earthquake insurance liabilities underwritten by private
insurance companies. Reinsurance premiums are collected and managed separately in theSpecial Account for Earthquake Reinsurance. Reinsurance claims are paid out to private
insurance companies at the time when massive earthquakes occur. The Earthquake
Insurance covers buildings for residential use and household goods.

DisasterPrevention /Reduction Expenses
Insurance

An insurance product for local governments that compensates for costs relating toevacuation in natural disasters. The insurance mainly covers the cost of setting up
evacuation centers, securing daily necessities, and transporting goods, as well as the costof overtime allowance for government employees. More than 350 local government
authorities have already signed up for coverage.

Weather Index,/Derivatives,/Parametric,
Insurance

Index insurance is a relatively new but innovative approach to insurance provision thatpays out benefits on the basis of a predetermined index (e.g. rainfall level) for loss ofassets and investments, primarily working capital, resulting from weather and catastrophic
events. Because index insurance doesn't necessarily require the traditional services of
insurance claims assessors, it allows for the claims settlement processes to be quicker andmore objective. As an adaptation measure to climate change, insurance company offers
insurance products aimed, for example, reducing agricultural business risks associatedwith extreme weather in developing countries, where agriculture is a key industry that isvulnerable to climate change.
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Risks and Investment Return (need to well-balanced)
Well-designed resilient infrastructure can bring about many benefits including
greater economic activity and more adaptable communities. When public funding forinfrastructure projects is insufficient, private investment can make up the gap.
 The importance of contribution to the provision of insurance coverage to existing important infrastructure and tothe construction of robust and sustainable society through infrastructure investment that could prevent or reducethe damage from disasters as an investor.

 Contribution to the provision of insurance coverage to infrastructure investments as a measure to hedge politicalrisk, business risk, price change risk and physical damage risk by terrorism or natural disasters. As a example ofinsurance coverage to infrastructure investments, we will introduce our overseas investment insurance.
 Difficult to provide insurance coverage without striking the balance between risk and profitability. Expectation ofpossible cooperation with private and public sectors to provide insurance coverage to insure these kinds of risks.

 Diversify the risk and secure the profitability of investments for private insurers which are responsible topolicyholders (and shareholders, in case of stock company) in considering the investment targets.
 Infrastructure investments should be promoted by decreasing the risk charge in the capital requirement.
 Should be avoided to distort the risk charge based on a political point of view that may threaten insurer’s financial
soundness by biasing the real risk measurement and insurers’ underwriting practices.

Recommendation to government officials and policymakers who yearn for infrastructure
investments by insurers to their country about the importance of efforts to make the returnon such infrastructure investments more attractive in order to promote them.
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Thank you for your attention
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International trends in climate change and disaster risk prevention (disaster risk prevention)
1994 Yokohama Strategy and Plan of Action for a Safer
World
Accomplishments and Remaining Challenges
a. Governanceb. Risk Identification, Assessment, Monitoring and Early Warningc. Knowledge Management and Education

In the international trends of disaster risk
reduction after Yokohama Strategy,
disaster risk financing includes actions toreduce losses in lives, economy andfinancial impact

d. Reducing Underlying Risk Factors
e. Preparedness for Effective Response and Recovery

Hyogo Framework for Action
2005 – 2015 (Priorities for action)
1. Make Disaster Risk Reduction a Priority
2. Identify, Assess and Monitor Disaster Risks andEnhance Early Warning
3. Build Understanding and Awareness
4. Reduce the Underlying Risk Factors
5. Be Prepared and Ready to Act

Disaster Risk Reduction•Risk assessment•Early warning•Disaster risk management
programs•Assistance to achieve disaster
resilience for developingcountries

1. Understanding Disaster Risk
2. Strengthen Disaster Risk Governance
3. Investing in Disaster Risk Reduction forResilience
4. Enhance Disaster Preparedness for
Effective Response, and to “Build BackBetter” in Recovery, Rehabilitation andReconstruction

Areas related to Disaster Risk Financing
Priorities for action 4. 19 k
Promote the development of financial risksharing mechanisms, particularly
insurance and reinsurance against disasters

Areas related to Disaster Risk Financing
Recognition

Sendai Framework for Disaster
Risk Reduction 2015-2030

Source: Data collection survey on climate change anddisaster risk financing P30､JICA

Priorities for action 3. 30 b

Despite the progress achieved indisaster risk reduction and decreasein mortality in the case of somehazards,• Disasters have continued to cause
serious damage and increased
economic loss

Reduce the financial impact of disasters on
governments and societies by:• Disaster risk transfer and insurance• Risk-sharing and retention• Financial protection for both public andprivate investment• Disasters impede progress towards
sustainable development

Priorities for action 3. 30 c

• New risks involved in development
are generated

Disaster-resilient public and private
investments
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Key industries exposed to weather risk (Weather Index Insurance) Offering customized weather protection derivatives and (re)insurance products
indexed to weather and commodity prices.
 There is increasing interest for structured protection from buyers in a variety ofindustries exposed to variable weather.
( This customized weather protection derivatives and (re)insurance products indexed to weather and commodity prices started to offer in the late 1990s ).

SectorIndustries exposed to variable weather

Agriculture

Crop yield / quality, handling, storage, pests

Construction

Delays, Liquidated Damages

Energy (Traditional)

Fluctuating demand

Energy (Renewable)

Fluctuating supply

Entertainment

Postponements, reduced attendance

Food & Drink

Reduced demand, increased raw material costs

Governments

Budget overruns, Humanitarian response

Insurance

Increased claims

Manufacturing

Reduced demand, increased raw material costs

Real Estate/Hospitality

Increase energy/premises costs, reduced attendance

Retailing

Reduced demand of weather-sensitive products

Transportation

Budget overruns, delays

Source: Sompo International Holdings

P 11Parametric weather protection and its characteristic Simple Structures:
Triggers based on a single peril or combination of perils
Temperature, precipitation, snowfall, wind speed, wave height, etc.
 Claims Process:Swift & Objective
Publicly-available data typically allows for settlement within ten
business days Global Reach:Comprehensive Data Availability
North America, Europe, Asia Pacific most active…
South America & Africa growing Flexible Contract Forms:
Indexed (Re)insurance or Derivatives
Protection written to suit specific client needs
Source: Sompo International Holdings

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8. Weather Index Insurance: Data required for developmentSource: Sompo International Holdings

Details of data required for the design of weather index insurance products
Risks covered
Typhoon and winddamage
FloodDrought
Cold summer andwarm winterHail

Examples of weather data
(public data)
Wind velocity, locations hit by the typhoon,
pathway record, and precipitation
Precipitation, stream flows, and depth offlooding (geographical features)
Temperature, precipitation, hours ofsunlight, amount of solar radiation
Temperature

Examples of data on damage (public data)(Example of Agricultural sector)
Planting area
Yield (by region, crop, and farmer)
Crop production cost (by region, crop, and farmer)
Amount of decrease (or increase) in yield
Amount of damage caused by price fluctuations
due to the increase or decrease in yield

Precipitation, whether hailstones fall or not,and atmospheric temperature
P 13Business continuity management of agricultural business
Recovery curve of current situation (before countermeasure)
Recovery curve after risk management measures including insurance system or risk finance

Natural disaster occurred

The degreeof operationof economy,supply ofgoods andservices, etc.

Present state

100%Analysis of characteristics
of disaster is required,and monitoring
to what extent it should
be reduced is necessary

Target②

Target② Reconstruction fund

Effect of countermeasures

Target ① Emergency fundIndemnity type insurance

Target①

Indexed type insurance
Present state
Time

Peacetime

Crisis (Response to funding at risk of disasters in agriculture /Risk management / compliance)
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