Following the news of the devastating earthquake and tsunami in Japan today, certainly, our first thoughts have been for the people of Japan and for all those traveling within the country. As we continue to stay updated on the news coming out of that region, and attempt to reach out to customers who may be affected, we’re also aware of the broader impact of these events on the state of general travel.
As the day progresses, news of delays and cancellations at airports, train stations, and ports of call in several locations has mounted. Travelers whose plans include departures, arrivals, or connections through affected areas such as Tokyo and Honolulu should double-check their travel insurance coverage to be sure that they fully understand the benefits provided in case of a delay. In general, travel delay coverage becomes effective after 6 hours and can provide reimbursement for incidentals such as food and lodging; some policies may also help with rebooking fees, though in this instance, many of the major carriers appear to be waiving those fees for passengers whose plans are impacted by the quake and/or tsunami.
In addition to delays and cancellations resulting from these events, travelers who plan to depart for Japan within the next few months may be concerned about damage to hotels and transportation hubs. If you purchased a travel insurance policy prior to the earthquake, you may be covered for some of those damages. For example, if your accommodations are still uninhabitable at the time of your scheduled trip, many insurance policies will allow you to cancel your travel plans.
Possibly the most important thing to know about earthquake insurance is this: A basic homeowners policy does not cover earthquake damage. Even if you don't live in an area where earthquakes are common, it's possible you might need earthquake insurance.
Earthquakes have occurred in 39 states since 1900, and about 90% of Americans live in areas considered seismically active. Yet only a small percentage of people purchase earthquake insurance.
Even in California, where earthquake fears are a daily fact of life, only about 12 percent of homeowners have earthquake insurance, according to the California Earthquake Authority (CEA), down from 30 percent in 1996 when the state legislature created the CEA.
Each year, more homeowners get rid of earthquake coverage than buy it because, according to consumer groups, they believe the policies cost too much and cover too little.
According to the U.S. Geological Survey, there is a 70 percent probability that one or more damaging earthquakes of magnitude 6.7 or larger will strike the San Francisco Bay area during the next 30 years. (A magnitude 6.7 earthquake is equivalent to the 1994 Northridge, Calif., earthquake that killed 57 people and caused $20 billion worth of damage.)
* European insurance index down 1.2 percent, led by reinsurers
* Insurers see no big hit from damaged nuclear power plants
* Chaucer says plant operators not liable under Japanese act (Adds ZFS, Swiss Re, Fitch comment)
LONDON, March 14 - Shares in European insurers fell steeply on Monday after analysts estimated over the weekend that the Japanese earthquake could cost the industry nearly $35 billion, making it one of the most expensive disasters ever.
The Stoxx 600 European Insurance Share Index was down 1.2 percent by 1155 GMT, underperforming the wider market, which was off 0.5 percent. Reinsurers Munich Re, Swiss Re and Hannover Re fell furthest, posting declines of between 2.5 percent and 3.8 percent.
Risk modeling agency AIR Worldwide on Sunday said the quake, which killed as many as 10,000 people when it struck northeastern Japan on Friday, could cause an insured loss of between $14.6 billion and $34.6 billion even before losses from a related tsunami are included.
That would make it the second-costliest natural disaster after Hurricane Katrina since 1970, when adjusted for inflation.
Chaucer , one of the world's biggest insurers of nuclear risk, said it did not expect any big claims as the Japanese Nuclear Act of 1961 absolves nuclear plant operators of liability from damage caused by major natural disasters.
Shares in Chaucer, currently in takeover talks with suitors including private equity tycoon Guy Hands, were up 2.3 percent at 55.25 pence, partly reversing an 8.5 percent fall on Friday.
PRICING POWER
Some analysts said the disaster, combined with heavy losses already suffered this year from floods in Australia and last month's New Zealand quake, could push up global insurance prices, boosting insurers' shares.
"In our view the loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector," Panmure Gordon analyst Barrie Cornes wrote in a note.
Shares in the sector have been under pressure due to persistently weak global insurance prices, reflecting stiff competition between well-capitalised insurers. A big loss would erode insurers' capital, forcing them to charge more in an effort to recoup big payouts to customers.
GOVERNMENT HELP
The overall impact of the latest disaster on insurers will be mitigated by the Japanese state's role in absorbing earthquake-related damage to households.
The hit will also be limited by a low take-up of insurance by Japanese households and businesses relative to Western countries, and by limited use of reinsurance by domestic Japanese players.
These factors limited the financial impact on insurers after the 1995 Kobe earthquake to about $3 billion, a small fraction of the overall economic loss of $100 billion.
Jefferies International analyst James Shuck estimated the latest quake would generate a more moderate insured loss of between $10 billion and $20 billion, helping to prevent further price falls but not enough to push them higher.
"We expect some overall stability to global insurance pricing, but not enough to turn the market as a whole," he said.
Ratings agency Fitch said it did not expect major downgrades to insurers' credit ratings as a result of the quake, but warned that some reinsurers could miss current earnings expectations.
Zurich Financial Services also said it was too early to estimate how it would be affected. (Additional reporting by Katie Reid in Zurich; Editing by Hans Peters)
