Insured losses from Typhoon Hagibis, which hit Japan on Oct. 12, could be in the same range as those from 2018's Typhoon Jebi, according to one prominent risk modeler.
The industry had initially been expecting insured losses of about $6 billion from Jebi, which struck Japan in September 2018, but claims came in far higher than expected and the bill could be as high as $16 billion, according to some estimates. Insured losses from Typhoon Faxai, which made landfall in Japan on Sept. 9, could be between $5 billion and $9 billion, according to risk modeling firm RMS.
Typhoon-damaged cars sit in mud on a street in Hoyasu, Japan, on Oct. 14.
Karen Clark, co-founder and CEO of risk modeling firm Karen Clark & Co., noted in an interview that Hagibis was more of a flooding event than Jebi, but that the two were "comparable in terms of the magnitude of the loss." She declined to provide a precise estimate but said her company would be issuing one this week.
There are even indications that the claims bill from Hagibis claims bill could exceed that of Jebi.
"The feeling is that this is bigger than Jebi, and [the insurance industry] wildly underestimated the insured values and the business value losses from Jebi so that's possibly going to push the number up," said Stephen Hope, head of major and complex loss for Asia at loss adjusting group Sedgwick.
There is a sense that Hagibis will at least have a bigger impact on the insurance industry than Faxai. Credit Suisse said in an Oct. 14 research note that preliminary estimates show insured losses from Hagibis could exceed $10 billion.
Hagibis affected a wide area after making landfall to the southwest of Tokyo in the evening of Oct. 12. James Cosgrove, modeler, event response at RMS said in an interview Oct. 14 that at least 15 of Japan's 47 prefectures had been affected, and that according to reports that day from Japan's Fire and Disaster Management Agency, roughly 4,000 homes had been flooded and a further 1,000 destroyed or partially damaged by other events, such as wind and mudslides.
The main source of claims is expected to be flooding. Cosgrove said there had been 51 levee failures as rain both before and during the storm swelled rivers, resulting in small towns being inundated.
It could take time for the complete insured loss picture to emerge. Hope at Sedgwick noted that domestic claims typically take precedence over commercial ones.
"You usually find that commercial claims are two to three weeks behind the domestic ones," he said.
Flood losses can also take more time than windstorm losses to assess and determine, Cosgrove noted.
"It will take time for the waters to recede and for an investigation of what areas have been flooded to go on," he said. Moreover, the fact that Hagibis struck Japan just over a month after Faxai could complicate the process of assessing claims.
Surging waves crash against the breakwater and a lighthouse near Kiho, Japan, during Typhoon Hagibis on Oct. 12.
"We have already established that some areas that were affected by Hagibis were also affected by Faxai so discerning which storm impacted which areas may also be a challenge that we face in the aftermath of this event," Cosgrove said.
Hope added that as well as the practicalities of accessing flooded sites, there was also the potential for latent structural problems caused by flooding that may not emerge for weeks or months.
A stormier future?
Claims will not just come from property damage. Sedgwick noted in an Oct. 13 Hagibis update that there was a potential for both business interruption claims, for companies that have suffered physical damage from the storm themselves, and contingent business interruption claims, from companies whose suppliers have been hit.
There could also be claims from the Rugby World Cup, which is taking place in Japan. Three matches were canceled because of Hagibis, including France vs. England and New Zealand vs. Italy. Hope said the washouts could trigger travel insurance claims and potentially event cancellation claims.
One question for the industry is whether the latest run of Japanese typhoons, following on from Jebi and Trami in 2018, will push up reinsurance rates at the April 1, 2020, renewals, where Japanese business dominates. At April 1, 2019, Japanese property catastrophe reinsurance prices increased by between 15% and 25% on contracts where there had been claims, according to reinsurance broker Willis Re.
Clark said her company believes that a Jebi-sized loss has a one-in-20-year return period, and that the industry may have been underestimating the loss potential from Japanese windstorms.
"These are not loss amounts that the industry should look at as being unexpected," she said.
Analysts at KBW wrote Oct. 16 that reinsurer Swiss Re AG, which has a high Japanese market share, is likely to exceed its annual catastrophe budget for a third year in a row, based on their estimate of around $500 million in Hagibis-related losses. They noted that even conservative estimates of Swiss Re's share of losses from Faxai ($500 million) and Hurricane Dorian ($180 million), among others, would leave it above its third-quarter and nine-month cat budgets.
Clark also noted that after Jebi, there was a tendency to overlook some of the characteristics of the area there were affected, such as older buildings and construction practices.
"I hope that with this storm that by the time people release their numbers they will be anticipating the nature of the claims, the geographical spread of the claims and hopefully do a better job," she said.