Parametric Earthquake Insurance Report

HDI Global SE, in partnership with Descartes Underwriting SA, has received approval from the Japanese Financial Services Agency (JFSA) to launch Japan’s first parametric earthquake insurance, supported by HDI Enablers and reinsured by Generali Global Corporate & Commercial.

This innovative product addresses coverage gaps for Japanese corporations facing earthquake risks, leveraging the Japan Meteorological Agency’s (JMA) Shindo intensity scale for rapid, transparent claims. This report examines the product’s features, Japan’s insurance market, and comparisons with similar parametric solutions in the United States, New Zealand, and China, highlighting its role in enhancing seismic resilience.

Parametric Earthquake Insurance

How Parametric Insurance Works

Parametric insurance operates differently from traditional indemnity-based policies by using predefined, objective triggers to determine payouts, bypassing the need for lengthy loss assessments.

For HDI’s parametric earthquake insurance, payouts are triggered when seismic activity reaches or exceeds specific thresholds on the JMA Shindo intensity scale (e.g., Shindo 5 or higher), as measured by real-time data from JMA’s monitoring network. Once the trigger is met, policyholders receive a predetermined payout within days, based on a transparent declaration, without requiring physical damage verification.

This approach ensures rapid liquidity, covers intangible losses like business interruption, and eliminates deductibles, making it ideal for managing complex risks in high-exposure regions like Japan.

Parametric Insurance

Overview of the Parametric Earthquake Insurance

This parametric earthquake insurance provides comprehensive coverage for Japanese businesses, addressing tangible and intangible losses from seismic events. Unlike traditional indemnity policies, it uses predefined Shindo intensity scale triggers (0 to 7) for payouts. Key features include:

• Comprehensive Coverage: Covers property damage, direct business interruption (e.g., operational downtime), contingent business interruption (e.g., supply chain disruptions), and intangible losses (e.g., reputational damage), often excluded in standard policies.

• No Deductible: Eliminates financial barriers, ensuring immediate liquidity.

• Rapid Claims: Payouts within days when seismic thresholds (e.g., Shindo 5+) are met, based on a straightforward declaration, compared to 3–6 months for traditional claims.

• Transparent Terms: Clearly defined triggers and payout levels simplify underwriting.

• Distribution: Available through HDI’s broker and agency network, led by Ikuya Shimada, Descartes’ Japan Director.

The product targets Japan’s high seismic risk, with a 75–82% probability of a magnitude 8+ Nankai Trough earthquake within 30 years, potentially causing $2 trillion in damages, per a 2025 government report. Over 1,000 quakes in the Tokara Islands since June 2025 highlight the need for innovative solutions.

Parametric Insurance

Japan’s Insurance Market and Parametric Trends

Japan’s life and non-life insurance market, valued at USD 300 billion in 2024, has an 8.7% insurance penetration rate.

The non-life segment (USD 100 billion) includes earthquake insurance, but traditional policies by Tokio Marine and Sompo Japan often exclude business interruption and intangible losses.

The Japan Earthquake Reinsurance Co., Ltd. supports household coverage but is limited for commercial risks. Parametric insurance, growing at a 25% CAGR in APAC, offers rapid payouts and broader coverage. Japan’s slow adoption, due to regulatory hurdles, is shifting with JFSA’s approval of 10 parametric products in 2024–2025.

Market Drivers

• Seismic Activity: Japan accounts for 20% of global earthquakes (magnitude 6+), with the 2011 Tohoku quake causing $360 billion in damages.

• Regulatory Support: JFSA’s push for innovation supports parametric products.

• Digitalization: 80% of insurers use data analytics, integrating JMA Shindo data for real-time risk assessment.

• Corporate Demand: 65% of corporations report insufficient business interruption coverage, per a 2024 Aon survey.

Challenges

• Awareness: Only 30% of businesses know parametric insurance, per Marsh Japan.

• Premium Costs: Annual premiums of $50,000–$200,000 deter SMEs.

• Data Dependency: Reliance on JMA data requires robust infrastructure.

Comparison with Similar Parametric Products and Regions

HDI’s product is Japan’s first, but similar parametric earthquake insurance exists in the United States, New Zealand, and China. Below is a comparison of products and regional market dynamics.

Comparison of Parametric Earthquake Insurance Products and Regional Markets

Metric	Japan (HDI Global SE)	United States (Swiss Re)	New Zealand (Munich Re)	China (PICC Re)
Product Name	Parametric Earthquake Insurance	Earthquake Parametric	QuakeGuard Parametric	Earthquake Catastrophe Bond
Coverage	Property, BI (direct/contingent), intangible losses	Property, BI, non-physical losses	Property, BI, infrastructure	Property, BI, disaster relief
Trigger Mechanism	JMA Shindo scale (e.g., 5+)	USGS magnitude (e.g., 6.0+)	GeoNet intensity scale	China Earthquake Network Center
Deductible	None	None	Low ($10,000–$50,000)	None
Payout Speed	Days	1–2 weeks	1–3 weeks	1–4 weeks
Market Size (2024, USD B)	100 (non-life)	150 (non-life)	20 (non-life)	95.5 (reinsurance)
CAGR (2024–2030)	2.3%	3.5%	4.0%	6.7%
Key Features	No deductible, transparent terms	Multi-trigger (magnitude, location)	Parametric for infrastructure	Cat bond for disaster relief
Key Drivers	High seismic risk, JFSA support	Corporate demand, tech adoption	Earthquake-prone, gov’t backing	Regulatory push, Belt and Road
Challenges	Awareness (30%), premium costs	High premiums, regulatory gaps	Limited market size, awareness	Data gaps, SME adoption
Dominant Insurers	HDI Global, Tokio Marine, Sompo	Swiss Re, Chubb, AIG	Munich Re, IAG	PICC Re, China Re

Notes:

• Market Size: Japan (USD 100B non-life, Swiss Re); US (USD 150B, Aon); New Zealand (USD 20B, IBANZ); China (USD 95.5B reinsurance, GlobalData).

• CAGR: Japan (2.3%, Swiss Re); US (3.5%, AM Best); New Zealand (4.0%, IBANZ); China (6.7%, GlobalData).

• Coverage/Triggers: Derived from HDI Global, Swiss Re, Munich Re, and PICC Re product descriptions.

• Drivers/Challenges: Based on Aon, Marsh, and regional regulatory reports.

Analysis of Product and Regional Differences

• Japan (HDI Global SE): The no-deductible model and coverage of intangible losses address gaps in traditional policies. Japan’s USD 100 billion non-life market grows slowly (2.3% CAGR) due to saturation, but high seismic risk (e.g., 1,000+ quakes in Tokara Islands, 2025) and JFSA support drive adoption. Low awareness (30%) and premium costs are hurdles.

• United States (Swiss Re): Swiss Re’s multi-trigger product (magnitude, location) offers flexibility but slower payouts (1–2 weeks). The USD 150 billion market benefits from corporate demand, but state-specific regulations complicate rollout.

• New Zealand (Munich Re): QuakeGuard focuses on infrastructure with GeoNet triggers. The USD 20 billion market grows at a 4.0% CAGR, supported by government backing, but its small size limits scale.

• China (PICC Re): PICC Re’s catastrophe bond emphasizes disaster relief, using China Earthquake Network Center triggers. The USD 95.5 billion reinsurance market grows rapidly (6.7% CAGR), driven by Belt and Road, but rural data gaps pose challenges.

Reasons for Product Differences

• Risk Profile: Japan’s frequent quakes necessitate broad coverage, including intangible losses. The US and New Zealand prioritize property and BI, while China focuses on disaster relief for infrastructure projects.

• Regulatory Environment: Japan’s JFSA fosters innovation, unlike the US’s fragmented regulations. China’s NFRA broadens coverage, and New Zealand’s government supports infrastructure-focused products.

• Market Maturity: Japan and the US have mature markets, enabling advanced parametric solutions. China’s rapid growth and New Zealand’s smaller market prioritize scalability and affordability.

Outlook and Implications

HDI Global and Descartes’ parametric earthquake insurance addresses critical gaps in Japan’s USD 100 billion non-life market, offering rapid payouts and coverage for intangible losses. With 20% of global earthquakes occurring in Japan and a 75–82% probability of a Nankai Trough megaquake, this product is timely.

Compared to the US, New Zealand, and China, Japan’s solution stands out for its no-deductible model and transparency, but awareness and cost barriers remain. As parametric insurance grows globally (25% CAGR in APAC), insurers like Tokio Marine and Sompo Japan may follow suit, intensifying competition. This initiative, supported by Generali and JFSA, sets a benchmark for innovative risk transfer in seismically active regions.

Consult Everbright Actuarial Consulting for Expert Guidance

To explore how parametric earthquake insurance can protect your business in Japan or other regions, contact Everbright Actuarial Consulting at info@ebactuary.com. Our team offers tailored risk assessments, product evaluations, and strategic insights to navigate seismic risks and optimize coverage. Reach out for consultations or educational resources to enhance your resilience.