Japan’s magnitude 9.0 earthquake could lead to insured-property losses of nearly $35 billion, making it one of the most expensive catastrophes in history, according to a risk-modeling analysis released Sunday by a U.S. consulting group.
The insurance cost of the quake is nearly as much as the entire worldwide catastrophe loss for the global insurance industry in 2010 and could result in higher prices in the insurance market after years of declines, according to the analysis released by Boston-based AIR Worldwide.
Total losses from the quake could range from $14.5 billion to $34.6 billion, according to the AIR analysis.
By contrast, the 1994 Northridge earthquake caused $15 billion in losses. If the AIR analysis proves accurate, the Japanese earthquake would rank as the second-costliest catastrophe in modern times, adjusted for inflation, right behind Hurricane Katrina. AIR officials cautioned that the quake cost estimate issued Sunday was preliminary and did not include costs associated with the tsunami that followed the earthquake or potential nuclear damage.
“It is still in the very early aftermath of the event,” said Dr. Jayanta Guin, senior vice president of research and modeling at AIR Worldwide. “Search-and-rescue efforts are still underway, and damage assessment has only just begun, while considerable uncertainty still remains in the seismic parameters that define the event.”
In many cases, buildings damaged by the quake may have been swept away by tsunami flooding, making it difficult to account for total losses, according to the analysis. AIR officials plan to issue updated estimates that will include the costs of tsunami flooding.
It was unclear Sunday what it will cost to clean up and monitor nuclear reactors damaged by the earthquake and flooding. Such reactors generally have insurance that excludes earthquake damage, and many Japanese homeowners have nuclear exclusions in their own policies.
The AIR analysis also notes that earthquake insurance is relatively uncommon in Japan, about 14 to 17% nationwide.
Quake insurance costs alone may stem years of price declines in the global property insurance and reinsurance markets, which have been awash in excess capital following an absence of major hurricane disasters in recent years.
Analysts and brokers had estimated that it would take a $50-billion event this year to stem declines in the price of insurance and reinsurance for the year. Since Jan. 1, the industry has seen $10 billion in losses from the earthquake in New Zealand and an estimated $8 billion to $10 billion in losses from unrest in the Middle East.