The 1st Annual Meeting of the Strategic Chinese-Korean-Japanese Cooperative Program:
Seismic Hazard Assessment for the Next Generation Map, Nov. 25 - 30, 2011, Harbin, China

Risk Management in Japan

Toshihiro YAMADAOYORMS Corporation, Japan

Profile of OYORMS
TM

Japan’s leading geotechnicalengineering firm※1

World’s leading risk managementcompany※2• Joint venture company established in May 1998.
• Co-development of Japan models integrating local expertise.
• Risk management service to the corporate markets• Risk analysis service to the real estate markets.
• Advance application of RiskLink™ for site level risk analysis.
• Develops and markets risk management products in Japan.
※1: OYO Corporation started its business from the investigation of ground structures for public authorities
authorities. Now,
Now it has sprung out to four major
business domains, namely, Construction, Environment, Disaster Management, and, Future Energy/Natural Resources. OYO has three methods to work onthese domains, namely, Engineering, Consultation, and very uniquely, Manufacturing of Measurement Instruments.
※2： Risk Management Solutions (RMS) is the world‘s leading provider of products, services and expertise for the quantification and management ofcatastrophe risk. For 20 years RMS has applied models, analytics, data and multi-disciplinary knowledge to the management of insurance risk associatedwith perils such as earthquakes
earthquakes, hurricanes
hurricanes, windstorms and terrorist attacks.
attacks More than 400 leading insurers,insurers reinsurers,reinsurers trading companies and otherfinancial institutions worldwide rely on RMS models' analytics to make better risk management decisions.

Ⓒ 2011 OYORMS Corporation, All Right Reserved.

2Contents• What is Risk/Risk Managementg?
• Risk Control– Building code and aseismic retrofit– BCP/BCM• Risk Finance– Insurance– Other risk finances• Challenges
Ch lloff riski k managementt forf ththe futuref tⒸ 2011 OYORMS Corporation, All Right Reserved.

3

What is Risk?
• Risk includes the following concepts.
– Amount of negative impact: Damage, Loss, ….
• “Pure risk” ⇔ “Speculative risk” (negative & positive impact)– Occurrence probability– Uncertainty: Variance• In the following discussion
discussion, we focus on:

Frequeency/Proob.

– Catastrophe (CAT) Risk caused by natural hazard– Especially,Especially Earthquake
CAT risk is
low frequency
but big impact

Damage/LossⒸ 2011 OYORMS Corporation, All Right Reserved.

4

What is Risk Management ?
Risk management is the process of protecting assets, earning, debt,
and human resources of the company
p y with maximum effects andminimum costs.
Ri k Control
Risk
C t l
Minimizing occurrences andaftereffects of damages
g andlosses

Risk FinanceRi k Avoidance
RiskA id

•Relocation•Withdrawal

Risk Reduction•Aseismic retrofit•BCP/BCMRisk Transfer•Insurance•Catastrophe bond•Earthquake derivative•Contingent Debt Facility

Risk Retention•Planned risk assumption•Self-insurance•Captive insurance company

Financial
Fii l arrangements
t fforcovering lossesⒸ 2011 OYORMS Corporation, All Right Reserved.

5

Risk Control

History of Building Code in JapanYear

Damaging Earthquake

Building Codes and Others

1923 The Great Kanto Earthquake
1924

Urban Area Building Act (Revision)

1948 Fukui Earthquake
1950

Building Standards Act

1968 Tokachi Offshore Earthquake
1971

Building Standards Act (Revision)

1978 Miyagi Offshore Earthquake
Building Standards Act (Revision)
New Seismic Design Standard

1981
1995

The Great Hanshin-Awaji
E thEarthquake
kAct for Promotion of Renovation for
E thEarthquake-Resistantk R i t t StStructurest

2000

Building Standards Act (Revision)

2006

Act for Promotion (Revision)

2007 Niigata Offshore Earthquake

Building Standards Act (Revision)

2011 The Great East Japan EarthquakeⒸ 2011 OYORMS Corporation, All Right Reserved.

7

Seismic Countermeasures for Buildings• Buildings designed by “New Seismic Design Standard” showed higher
aseismic performance than older building at the Hanshin Earthquake .
• “Act for Promotion of Renovation for Earthquake-Resistant Structures” wereestablished after the Hanshin Earthquake.
• The purpose of this act is upgrading old buildings’ aseismic performance up to the level ofnew seismic design.
• A seismic renovation has been completed 73% for public schools and 62% for hub
hhospitals
it l as off 20102010.

• At the Great East Japan Earthquake, there were relatively few structural
g but a lot of nonstructural damage.
gdamage• Nonstructural components are ceilings, lights, windows, partitions , file cabinets,computers, air conditioning facilities etc.

• Building Code is intended to protect a human life in a buildingbuilding. Keeping thebuilding code is insufficient for maintaining building function and businesscontinuity.
• Securing production equipments is essential for business continuity of factories.

• Base isolation structure becomes common for hospitals, IDCs, and otherimportant facilities
facilities. There are 2
2,600
600 base isolated buildings as of 20092009.
Ⓒ 2011 OYORMS Corporation, All Right Reserved.

8Nonstructural Damage at the Great East Japan Earthquake

Crack in a tile wall

ALC exterior wall fallingg down

Ceiling damage

Ceiling damage構造体（RC造）の損傷・層崩壊Ⓒ 2011 OYORMS Corporation, All Right Reserved.

9Business Continuity Management (BCM)• It is recognized that hard and soft measures are essential for disastermitigation.
g• Importance of BCP/BCM is recognized after 9.11 WTC.
• In Japan,paround 2004, after Niigata-keng
Chuetsu Earthquake,q
BCP/BCM came to be frequently discussed about.
• “BC Guidelines” was published in 2005 by Ministry of Economy, Trade and Industry.
BC Guidelines verver.1
1” was published in 2005 by Central Disaster Prevention CouncilCouncil.
• “BC• “Small and Med. Enterprise BCP Guidelines” was published in 2006 by Small and Med.
Enterprise Agency.
• Business Continuityy Advancement Organization,g, NPO,, was established in 2006.

ACTION
Maintain andImprove BCPCHECKMonitor andReview BCP

BCM System
DOImplementand Operate
BCP

PLAN
Establish
BCP•Policy, Objectives, Scope•Mission Critical Business Identification•Risk Assessment•Business Impact Analysis (BIA)•Recovery Time Objective (RTO)•Recovery Specifications•Solution Implementation•Resource Provision•Documentation
Dt tiⒸ 2011 OYORMS Corporation, All Right Reserved.

10

Progress of BCP/BCM
2008

18.4

2010

7.2

27.3

0%Midsize
Company20%

14.6

27 6
27.6

56.5

5.1

13.1

12.6

BigCompany

11.5

11.1

24.2

24.2

40%

15.0

1.2

60%

80%

45.3

10.3

30 8
30.8

16 9
16.9

11 1
11.1

0.0

100%

2.2

12 0 1.5
12.0
150%

20%

40%

60%

80%

100%

Completed

In Process

Have PlanNo PlanUnknowing

No Answer

Reference: Cabinet Office, Government Of Japan, 2011note:
t targeted
tt d industries
i d t i are Communication,
Ci tiGGas, T
Transportation,
t tiandd Railway
R il• BCP/BCM is still developing stage both in penetration and effectiveness inJapan.
Ⓒ 2011 OYORMS Corporation, All Right Reserved.

11

Challenges of BCP/BCM• For the organizations which have already started BCP/BCM– It is important to establish a PDCA cycle of BCP as routine practice and improvetheir BCP continuously.

• For the organizations which cannot progress BCP/BCM– It is a start p
point to share the common image
g againstgtheir own risk.
– Risk quantification is one effective way for it.

• Current major concern– Tsunami impact– Supply Chain Management (SCM)
Japanese companies are painfully aware of the importance of SCM in the recent disasters
disasters.
• Niigata-ken Chuetsu-oki Earthquake in 2007
• The Great East Japan Earthquake in 2011
• Flood in Thailand in 2011

• Standardization of BCM is discussed globally ⇔ ISO• BCI/BSIBCI/BSI, UK: The BCI Good Practice Guidelines (2010),(2010) BS25999
BS25999-2
2 (2007)(2007), BS25999
BS259991(2006)• NFPA/ANSI, USA: NFPA1600 (2010)
pGuidelines ((see ppageg 10))• JapaneseⒸ 2011 OYORMS Corporation, All Right Reserved.

12

Risk FinanceInsurance Condition in Japan• Insurance deregulation and liberalization was done in 1998.
• RiskRi k quantification
tifi ti bby modeld l was iintroduced
t dd ffor riski k managementt off
insurance company and insurance rating.

• Insurance coverage
g rate of the East Japanp Earthquake
qis highergthanof the Hanshin Earthquake. (see next page)• However, insurance coverage rate in Japan is not so high as theanother major overseas catastrophe events. (see next page)Ⓒ 2011 OYORMS Corporation, All Right Reserved.

14

Claims Paid for Major Disasters
Category
EQ

Event Name (Year)

Total Loss

Claims Paid¥ 16,900 billion ※1 personal

The Great East Japan
Earthquake (2011)

Remarks¥ 1,178 billion※4¥ 529 billion※5(insurance)(Nov. 9th)

(mutual aid)

corporate

720 k claims
320 k claims(Jul. 15th)¥ 600 billion¥ 400 billion coveredby reinsurance etc.

Jappan(May 19th, Nikkei)

The Great Hanshin
Hanshin-Awaji
Awaji
Earthquake (1995)¥ 9,600 billion ※2 ppersonal¥ 78 billion※4

6.5 k claims¥ 119 billion※5

100 k claims(insurance)(mutual aid)

Worldwid
deGeyo Earthquake (2001)¥ 17 billion※4

WS&FL MIREILLE (1991 No.19)¥ 568 billion※4SONGDA (2004 No.18)¥ 387 billion※4$ 30 billion ※3$ 21 billion※6WS&FL Hurricane Katrina (2005)$ 96 billion ※3$ 72 billion※6Hurricane Andrew (1992)$ 44 billion ※3$ 25 billion※69.11WTC (2001)$ 83 billion ※3$ 23 billion※6

EQ

TerrorNorthridge Earthquake (1994)※1 Cabinet Office, Government Of Japan, ※2 National Land Agency, ※3 National Research Institute for Earth Science and Disaster
Prevention, ※4 The General Insurance Association of Japan, ※5 JA mutual Aid, ※6 SwissRe, Sigma2011, No1Ⓒ 2011 OYORMS Corporation, All Right Reserved.

15

Other Risk Finance• Advantage and Disadvantage of Insurance– Insurance covers actual loss. Basis-risk
Basis risk is low.
– It takes some time before receiving insurance payment because
investigation takes time.
– It is difficult to buy insurance covering “Business Interruption (BI)” inJapan.
– It is generally said that insurance capacity is insufficient in Japan
Japan.

• Alternative Risk Transfer ((ART)) can cover the disadvantage
g ofinsurance– CAT Bond, Earthquake Derivative, etc.
– “Magnitude“Mi d trigger”i” andd “S“Seismici i iintensity
i trigger”
i”
are common for corporate risk finance.

• Contingent Debt Facility– Commitment line for CAT eventsⒸ 2011 OYORMS Corporation, All Right Reserved.

16

Challenges of risk management
for the future

The East Japan Earthquake and Other Major Earthquakes

The Great East
JapanEarthquake

Tokai EQ

N th TokyoNorth
T k Bay
BEarthquake
E thk
The Great Kanto Earthquake 1923
Genroku Earthquake 1703

To--Nankai EQ
To

Nankai EQ
Hyuga-Hyuganada EQJMA Seismic Intensity for the 3 Coupled Earthquakes along Nankai-trough were evaluated by Central Disaster Prevention CouncilⒸ 2011 OYORMS Corporation, All Right Reserved.

18

Historical Earthquakes and Coming Earthquakes
Estimated Population inth AreatheA（ illi ）（million）

Event Name

The Great Hanshin-Awaji
Earthquake (1995)

Property
LossRemarks(EstimatingOrganization)5+≦ SIJMA

6-≦ SIJMA(trillion yen)

94

9.6

National Land
AgencyCabinet Office,
Government OfJapanThe Great East Japan
Earthquake (2011)

27

616.9

3 coupled Earthquakes along
Nankai-trough(Tokai, To-Nankai, Nankai EQ)

41

1540～60

Central Disaster
Prevention CouncilTokyo
Toko Metropolitan Earthq
Earthquakeake(North Tokyo Bay Earthquake)

362766.6

Central Disaster
Prevention CouncilⒸ 2011 OYORMS Corporation, All Right Reserved.

19

Challenges of risk management for the future• Professional risk manager is required for the Japanese company.
• Financial departmentpbuys
y insurance,, maintenance department
pp
plans
aseismic retrofit of buildings, administration department manages BCP/BCM,
but there no person who can control all of them.
• Persons in charge are frequently changed by personnel rotation.

• Seismic Hazard Map/Modelp
is used for not onlyyg
governmental disastermitigation but also insurance industry and risk management of otherprivate sectors. Further improvement of the reliability and disclosure
are requested.
requestedⒸ 2011 OYORMS Corporation, All Right Reserved.

20

Application and capability of Hazard Map
Governmental disastermitigation measures

Hazard Map
p ((Model))Interrpretatioon

Damage Function((Fragility/Vulnerability)
g yy)

Building code
Aseismic design

SI, PGA, PGV, Sa, Sd … ?

Aseismatic inspection forexisting buildings

Insurance Rating

Risk Model

Trigger analysis for ART“What impact could be brought byhazard ??” is the concern of people!

Damage prediction forrisk management
Selecting best location for
new facility,y backup
p site, etc.

Ⓒ 2011 OYORMS Corporation, All Right Reserved.

21

Thank you !
謝謝!
謝謝감사합니다!

Contact
Toshihiro YAMADAOYORMS Corporation
Address: Akasaka Kikyo Bldg. 4F, 3-11-15 AKASAKA,
Minato-ku, Tokyo, 107-0052, Japan
Phone: +81-3-5575-7189
Mail: toshihiro.yamada@oyorms.co.jpⒸ 2011 OYORMS Corporation, All Right Reserved.

22