Initial Costs, summarized by Laurie Johnson

March 30, 2011 by  
Filed under Social & Economic Impacts

The Japanese government (Bank of Japan) has estimated the total direct damage (mainly the damage to structures and infrastructure) at 16 – 25 trillion yen (US$ 197 – 308 billion), making this the costliest natural disaster in Japan’s and the world’s history (see link to Reuters article 1 below). The upper end of this range also is equal to 6% of Japan’s GDP—a key metric on whether there are enough assets in an economy to absorb and rebound from such a shock. This is going to be a shock to Japan’s overall economy but it is still within their capacity to manage. But, this estimate doesn’t include the indirect losses that result from business interruption and other social and economic impacts, especially with the nuclear plant problems and ongoing rolling blackouts. These losses could significantly increase the total losses from this tragic disaster and also the severity on Japan’s economy and the government’s ability to finance the rebuilding.

 

Also, the catastrophe risk modeling firms, that support the insurance industry in risk management, are some of the organizations that prepare post-disaster loss estimates. Presently, the top firms are estimating the potential insurance industry losses at $12 to $35 billion, and Barclay’s estimates that the insurance losses could be $42 billion (see link 2 below)

 

These numbers far exceed the total losses and insurance payouts following Japan’s 1995 earthquake—which was their costliest disaster in modern history before March 11. The total direct and indirect economic losses exceeded $150 billion with more than $100 billion in property damage; insurance funded only around $3 billion of the losses. The majority of insurance payments were made on larger, commercial properties, particularly for multi-national operations. Japan’s national government allocated more than $58 billion in the first 3 years to reconstruct basic infrastructure, housing, and other physical facilities after the 1995 earthquake. We can expect that their national government will be contributing much more to fund response and recovery from the 2011 disaster.

 

Some links to articles:

http://www.reuters.com/article/2011/03/23/us-japan-economy-idUSTRE72M10920110323

 

http://www.reuters.com/article/2011/03/25/japan-insurance-idUSN2524162220110325?feedType=RSS&feedName=everything&virtualBrandChannel=11563

 

Laurie Johnson Consulting | Research

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