Damage in Osaka, Japan following Typhoon Jebi in September 2018. Photo: Masaya Noda / Greenpeace
From the devastating wildfires in California to massive floods in Australia and New Zealand, climate-related disasters are ramping up economic losses. When losses soar above the level that can be covered by insurance, the so-called “insurance protection gap” widens.
This gap is widening. Globally, natural disasters caused losses of US$320bn in 2024, according to Munich Re. Of this, $140bn – nearly 45% – was insured. The company notes that the overall losses and particularly the insured losses were far higher than the inflation-adjusted averages of both the past 10 and the past 30 years.
But in Japan, the insurance protection gap is still not yet pronounced. There, the intensity and frequency of climate-related disasters are certainly on the uptick, leading insurers to raise their premiums. But the level of property casualty insurance coverage remains high, quelling fears that an increasing number of households and companies will be left uninsured.
Japan’s insurance industry and regulators are aware of climate-related risks and are taking steps to adapt and mitigate these risks, including disaggregating insurance plans according to various risk levels and working with policyholders to preempt and prepare for disasters. But the country’s insurance companies are only now beginning to offer new climate-related insurance products like parametric insurance.
Climate change and collusion
The Japanese insurance market today has been shaped by a pair of extreme weather events in the recent past. Typhoon Jebi ravaged parts of Japan in September 2018. Then, less than a month later, another massive typhoon battered its southern islands and Tokyo. Between 2018 and 2019, four major typhoons struck Japan leading to total insured losses of more than $30bn from wind, floods and storm surge damages.
These storms were watershed moments for Japanese insurers. Faced with worsening natural disasters and skyrocketing claims, Japan’s four largest non-life insurance groups – Tokyo Marine, Sompo Japan, Mitsui Sumitomo and Aioi Nissay Dowa – resorted to collusion and arranged price hikes for corporate clients.
Following investigations and fines from regulators, government reforms forced insurance companies and brokers to recommend products that benefit their customers instead of themselves and ordered the insurers to sell their cross-shareholdings with their clients.
Premium hikes continue
These reforms go a long way towards breaking up the clubby culture of Japan’s insurance industry. But they have done little to ease climate change’s pressure on insurers to raise premiums.
In fact, just as the government was mulling industry reforms in late 2024, the four major insurers announced premium hikes for fire insurance by an average of 15% for their corporate clients and around 10% for households. These decisions were driven by mounting payouts – a 45% increase over 10 years – for natural disasters that have left the insurers’ fire insurance business in the red for a decade.
What’s called fire insurance in Japan covers a wide range of damages: fire, of course, but also wind, flooding, snowfall, hail, lightning strikes, and explosions and ruptures caused by gas leaks.
Insurance companies set their own premiums but they take into account and often closely hew to the reference rate calculated by the General Insurance Rating Organization of Japan (GIROJ). The premium increase in 2024 reflected the 13% increase in the fire insurance rate published by GIROJ in June 2023.
“The risk environment surrounding natural disasters has changed significantly in recent years,” GIROJ explained. “[C]limate change is influencing the increase in powerful typhoons that cause severe damage, as well as changes in the frequency of typhoon occurrences.”
But the insurance gap is limited
Historically, the insurance protection gap in Japan has been associated with damages from earthquakes. The gap is still limited when it comes to climate-related disasters like typhoons and flooding.
According to the annual insurance monitoring report from Japan’s Financial Services Agency (FSA), the number of households and companies with insurance coverage against wind damage remains high despite rising damages and premiums.
“The damages from wind disasters, such as typhoons, are covered almost 100% both for households and for companies,” an FSA spokesperson said. This is because wind damage has traditionally been automatically attached to fire insurance policies.
On the other hand, the number of households with flood insurance has been on the decline, from around 80% in 2013 down to just over 60% in 2022. As the FSA explains, this is because flood insurance is optional, giving homeowners the freedom to choose depending on their location. “On the household side, since some people live in condominiums or in elevated areas, the number of flood insurance policies has been gradually declining,” said the spokesperson.
“The protection gap still exists and I think it is an important issue,” he said. “But compared to the levels we hear about in Europe, the US, south-east Asia or other emerging economies, it is not that serious a problem.”
How insurers and policymakers are preparing for climate risks
Japanese regulators may not be alarmed about the insurance gap, but they and the industry as a whole are taking steps to prepare for growing climate-related damages.
To raise awareness among insurance industry stakeholders, GIROJ translated the protection gap report published by the Global Federation of Insurance Association in March 2023 which includes recommendations on how insurers and policymakers can pre-emptively reduce and adapt to damages from disasters.
As it turns out, insurers are already implementing some of those recommendations, including conducting risk surveys at their corporate customers’ buildings, working with customers to craft their business continuity plans to include preparedness for disasters and emergencies, and providing real-time disaster information to help customers minimise damages.
A recent innovation was a more detailed classification of flood risks incorporated into the premium increase in late 2024 which will lead to premiums that vary by location. Insurers hope this change will disincentivise construction in flood-prone areas while making it more affordable for companies with properties in lower-risk areas to purchase flood insurance.
Beyond these measures, insurers are requesting GIROJ to improve its climate-related risk models through scenario analysis.
For its part, the FSA nudges insurers to do more. “We encourage insurance companies to properly assess the river flooding risks indicated on flood hazard maps and to provide adequate information on other water-related disaster risks, such as inland flooding,” the FSA spokesperson said.
Parametric insurance: a low-hanging fruit
Globally, new insurance products are garnering attention as a way to slow or prevent widening of the climate-related protection gap. Parametric insurance is one such product which automatically provides rapid payouts to policyholders if measures of disasters or weather events (think temperatures, wind speed, precipitation or water levels during floods) exceed defined limits. This is in contrast to traditional insurance which depends on the actual losses as a result of disasters. As a result, parametric insurance can provide much faster payouts than traditional insurance.
In Japan, parametric insurance products have been around for some time but only for earthquakes. As for weather-related damages, insurers are only now starting to take their first steps. Just last month, Mitsui Sumitomo Insurance, a subsidiary of MS&AD Insurance Group, announced its new parametric weather insurance, designed to quickly settle claims and automatically provide payouts if key weather metrics reach above a certain threshold.
As the Japanese Meteorological Agency warns that the intensity of typhoons and the frequency of torrential rain will continue to rise in the coming years, catastrophic typhoons like those in 2018-19 that led Japanese insurers to collude and raise premiums will become more likely.
The insurance industry as a whole will need to follow the example of Mitsui Sumitomo by offering innovative products to respond to mounting climate-related damages. Applying its experience in parametric earthquake insurance to wind, flood and other weather insurance should be considered the low-hanging fruit.
This page was last updated September 18, 2025
Written by
Walter James is an independent scholar and principal consultant at Power Japan Consulting. His expertise is in the domestic and international dimensions of Japan’s climate and energy policy. He is a frequent contributor to the Japan Times, Energy Tracker Asia, and Climate Home News. His writing has also appeared in the East Asia Forum and The Diplomat. He holds an MA in the social sciences from the University of Chicago and a PhD in Political Science from Temple University. He was a Fulbright Graduate Research Fellow at Waseda University in Tokyo, Japan from 2021 to 2023.
