In response to a number of large-scale natural disasters in recent years, which some experts attribute to climate change, there will be a hike in fire insurance premiums from October.

The move comes after the General Insurance Rating Organization of Japan (GIROJ), a nonprofit body of nonlife insurance companies, decided in July 2014 to raise benchmark rates used by member firms when setting fire insurance premiums by an average of 3.5 percent to cope with growing payouts.

It will be the first hike in fire insurance premiums since April 2007.

What follows are basic questions and answers on fire insurance, which compensates for property damage from natural disasters as well as fires.

How extensive will the expected premium hike be?

Fire insurance premiums by major insurers will go up by an average of 2 to 4 percent in light of the decision by the GIROJ.

Member insurers are not obliged or legally bound to set premiums in accordance with GIROJ’s benchmark, but they usually make revisions in accordance with it.

The rate of premium increase will vary among insurers and will be based on the location and the type of dwellings being insured.

Many firms plan to introduce discounted premiums covering newly or recently constructed dwellings, to ease the hike.

What kind of damage does fire insurance cover?

Although the label “fire insurance” naturally brings to mind losses caused by fires, in fact it covers damages from a wide range of natural disasters, including lighting, typhoons, flooding and heavy snow.

Properties, including furniture and electric appliances, can also be covered, but customers need to buy insurance specifically for such items.

Fire insurance also covers damages sustained from water leaks and property damage and loss of assets through theft.

Damage from earthquakes, however, is not covered by fire insurance, but rather by earthquake insurance, which also covers damage from tsunami and volcanic eruptions. But earthquake insurance cannot be purchased without having first bought fire insurance.

In July last year, earthquake insurance premiums for housing rose 15.5 percent on average.

Why did GIROJ decide to raise the benchmark rates?

The organization cites increasing payouts due to natural disasters and water damage in recent years. While average annual payouts for damage caused by typhoons between fiscal 1989 and 2003 stood at about ¥80 billion, it increased to some ¥100 billion on average over an eight-year period from fiscal 2004 to 2012, according to figures compiled by the GIROJ.

Similarly, payouts for losses caused by wind gusts, tornadoes and hail have increased to about ¥140 billion during the fiscal years from 2010 to 2012, compared with around ¥50 billion from fiscal 2007 to 2009.

Furthermore, total payouts from damages caused by water leakage were ¥16 billion in fiscal 2011, up from ¥10.5 billion in fiscal 2009 and ¥13 billion in fiscal 2010.

Does the benchmark rate vary depending on the location?

Yes, it varies depending on which prefecture the property is in, and the type of structure.

Typical natural disasters and their frequency differ from prefecture to prefecture, which contributes to calculations of the benchmark rate for each prefecture, a spokesman for the GIROJ said.

For example, prefectures in Kyushu are prone to typhoon damage, while Hokkaido and prefectures along the Sea of Japan tend to be hit by heavy snow, he said.

The rates also change in accordance with three categories of housing: condominiums with reinforced concrete; single-family dwellings with fireproof structures, including reinforced concrete; and wooden structures, including apartments.

After the October premium hike, how much will customers pay?

For example, the yearly premium for a ¥20 million annual policy covering a single-family wood home in Tokyo, underwritten by a major nonlife insurer, will cost ¥35,510, up from ¥35,270; The same coverage will cost Osaka residents ¥37,380, down from ¥41,730, and residents in Fukuoka will pay ¥64,730, up from ¥50,810.

Reinforced concrete condominiums annually insured for ¥10 million will cost Tokyo and Osaka residents ¥4,510, up from ¥3,650, while residents in Fukuoka will have to pay ¥4,800, up from ¥3,650, according to the firm.

Have payouts for damages caused by fire increased?

The GIROJ does not reveal payout figures, but says the amount has decreased over the years, given that fires have been declining, the spokesman noted.

Fires in buildings have generally decreased over the years, according to a 2014 report by the Fire and Disaster Management Agency.

There were 35,186 fires in 1989, but only 25,053 in 2013.

Is global warming affecting the premium hike?

Yes. The GIROJ said prospects for natural disasters are becoming increasingly uncertain, citing reports on global warming by international organizations such as the Intergovernmental Panel on Climate Change.

Reflecting its stance that long-term calculations are becoming difficult, the GIROJ said in July last year that the new benchmark rates would be applied for up to 10 years. Previously no time limit was placed on the benchmark rates.

As such, the longest contract period offered by nonlife insurers will be shortened to 10 years from the current 36, which was set in accordance with the payment period of home loans.


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