Insurable losses from the 3 April magnitude-7 earthquake that struck Hualien in eastern Taiwan will be between $5bn and $8bn, according to CoreLogic, a US-based provider of financial, property, and consumer information, analytics and business intelligence.
Mr Jon Schneyer, director of catastrophe response at CoreLogic, in a commentary titled “Mw 7.4 Earthquake Rattles Eastern Taiwan”, said that the estimated losses include ground shaking and fire-following damage to only residential, commercial, industrial and agricultural properties in Taiwan. They do not include any damage to government buildings and transportation infrastructure such as bridges or roads. Demand surge is included. The insurable losses represent ground-up damage and do not consider the application of policy deductibles or limits. The estimate does not exclude losses ceded to the Taiwan Residential Earthquake Insurance Fund.
Impact on insurers
The earthquake caused buildings to tilt or collapse and led to infrastructure disruptions. Data and analytics company GlobalData said that nevertheless, insurers are expected to weather well the financial impact of the quake.
Government-backed schemes are anticipated to mitigate losses, although insurers may re-evaluate risk exposure and adjust premiums to maintain profitability.
GlobalData insurance analyst Aarti Sharma said, “Being located in one of the three major seismic regions globally, Taiwan is prone to natural calamities, especially earthquakes. As a result, the penetration of earthquake insurance is moderately high in Taiwan, and the current earthquake is expected to result in high claims for local insurers and reinsurers.”
According to GlobalData’s Global Insurance Database, property insurance claims are expected to account for an 11.6% share of the total general insurance claims in 2024, amounting to NT$14.1bn ($0.5bn). However, with this event, the actual claims in 2024 might increase once the complete impact of the earthquake is realised.
Profitability
Despite the losses, the overall profitability of the general insurance industry in Taiwan is not expected to be significantly impacted, as the average loss ratio of property insurance remained low at 31.5% during 2019–23.
Additionally, most of the losses will be borne by the Taiwan Residential Earthquake Insurance Fund (TREIF). The government established the TREIF in 1999 to create an earthquake insurance pool and strengthen the earthquake insurance mechanism in the country. The earthquake insurance that is underwritten by the general insurers is ceded to the TRIEF which retains most of the risk and transfers the remaining to domestic and international reinsurers. Effective 1 April 2024, the liability assumption limit of the residential earthquake insurance scheme has been increased to NT$120bn.
Growth of property insurance
Ms Sharma said, “However, in the short term, to maintain profitability, property insurers might re-assess their risk exposure, which is expected to increase the premium rates for property insurance policies and support property insurance growth.”
As a result, the property insurance industry is expected to grow from NT$51.8bn in 2024 to NT$66.8bn in 2028, in terms of gross written premiums (GWP) at a compound annual growth rate (CAGR) of 6.5% over 2024–28.
With the considerable impact of the recent earthquake on residential and commercial property, the demand for fire and natural hazard policies that cover earthquake insurance is expected to increase in 2024 and 2025. Fire and natural hazard policies are expected to account for an 80.4% share of total property insurance GWP in 2024.
Ms Sharma said, “The recent earthquake could translate into higher claims than anticipated for insurers and reinsurers in Taiwan. The increased frequency of such large-scale natural calamities is expected to further create demand for the fire and natural hazard policies in the country, which will support property insurance growth over the next five years.”