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New RMS Study Estimates Half a Million Fatalities
from Avian Flu Pandemic Outbreak In Japan
RMS Study Looks at the Impacts of Catastrophes on
Life and Personal Accident Insurers in Japanese Market
Newark, Calif. – January 25, 2006 – Risk
Management Solutions, Inc. (RMS) released the findings of an in-depth
study that provides life and personal accident insurers in Japan with
key benchmarks for the potential risk of human casualties from
catastrophic events. The RMS study, “Catastrophe Mortality in Japan: The
Impact of Catastrophes on Life and Personal Accident Insurance,”
examines scenarios that would cause over 10,000 fatalities –
representing a 1% increase in annual mortality – in the categories of
infectious disease, earthquake, tsunami, and terrorism. This is the most
extensive analysis to date of potential catastrophe risk in Japan for
these segments of the insurance industry.
“Japan has the largest life insurance industry in the
world. While it has rarely faced losses on the catastrophic scale
confronted by property insurers, large losses are clearly possible and,
as some argue, inevitable in the longer term,” said Hemant Shah,
president and CEO of RMS. “Our hope is that this study will improve the
understanding of the potential risk from human casualty in Japan and
lead to the reduction of casualties from future catastrophes through
increased awareness, preparedness, and mitigation.”
Infectious disease currently ranks third after cancer
and heart disease as the primary cause of death in Japan. Given current
heavy travel volumes and open borders between countries, a disease
originating anywhere in the world can spread quickly into susceptible
populations in many countries. A new mutation of the influenza virus is
particularly feared within the scientific community, and countries
neighboring Japan are the likely source of an outbreak.
For this study, RMS looked at the scenario of an
influenza virus mutation developing into a pandemic and spreading
through many cities in Japan despite stringent response measures
implemented by the government. The pandemic scenario in Japan results in
an estimated 24 million people requiring medical treatment and 500,000
deaths. The deaths result in group life and individual life insurance
payouts totaling $58 billion.
Earthquakes are also a major cause for concern in
Japan, where they have been responsible for over 160,000 fatalities
since 1900. High casualty levels in Japanese earthquakes have usually
occurred in older residential homes, but today’s risk includes the
collapse of high-occupancy buildings. Modern office buildings and major
apartment complexes contain thousands of people at a time. These tend to
be built to more stringent design codes, and are less likely to
collapse. However, as they increase in number, the chances of even a
small number of these high-occupancy structures failing would mean a
large loss of life. A severe earthquake can reveal construction faults
or design errors that would otherwise be hidden – one of the major
surprises in the 1995 Kobe Earthquake was the failure of modern
buildings that had been designed to an earthquake code.
RMS looked at two earthquake scenarios for the study:
a magnitude 7.3 earthquake occurring at night in downtown Osaka and a
magnitude 8.0 earthquake hitting the Tokyo region during the day.
Results showed that the Osaka event would cause 10,000 fatalities and
96,000 injuries, while the Tokyo quake would cause 17,000 fatalities
from shake, 8,000 fatalities from fire, and over 170,000 injuries.
Insurance payouts for human casualties under personal accident, group
life, and individual life policies in the Osaka and Tokyo earthquake
scenarios reach nearly $1.4 and $3.3 billion respectively.
In addition to flu and earthquake, the study also
examines scenarios of high mortality arising from a major tsunami and an
extremist terrorism attack. The scenarios presented in this report
quantify a range of losses that could be incurred by the insurance
industry given these different types of events.
“Catastrophes threaten the earnings and reserves of
life insurance companies in Japan,” commented Dr. Andrew Coburn, vice
president of catastrophe research. Some insurers can suffer a
disproportionate share of the loss if a particular town or locality
where they have a concentration of their policy holders is impacted.
This report is a first step in quantifying catastrophe risk for life
insurance and providing tools for insurers to manage it.”
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