Kobe earthquake (1995)

On January 17, 1995, at 5:46 a.m., a magnitude 6.9 earthquake hits the Kobe conurbation, on the island of Honshu. It kills 6,434 people, destroys or damages hundreds of thousands of buildings, collapses a section of the Hanshin Expressway and paralyzes one of the largest ports in the world. Damage runs to more than a hundred billion dollars, perhaps ten times the insured loss. In Japan, earthquake insurance is not sold alone but as a supplementary cover to home fire insurance, under a scheme where the state and the Japanese reinsurance body, the Japan Earthquake Reinsurance Company, share losses above a cap. The take-up rate was then about 3 to 4% of households. The shock raised that rate over the decade, to around 30% today, and the scheme has raised its overall payout cap several times since. The case is cited in every debate on the protection gap: a major urban earthquake in a rich country, with 6% of losses insured. It is also a lesson in the geography of risk, for corporate insurers as well as reinsurers: the industry's insured losses, business interruption and the port's supply chain were felt well beyond the area.