Taiwan sees huge surge in earthquake insurance demand

25 years after the Chi Chi earthquake, TREIF has increased its funding for the event to $100 million.

Taiwan’s residential earthquake insurance fund paid out up to $45,000 (T$1.5 million) to cover total loss of a home during the 1999 Chi-Chi earthquake, plus $6,000 (T$200,000) for living expenses. The annual premium is $40.50 (T$1,350), according to Jay Carpenter.

Reinsurance plays a major role in the risk management of the TRIF, and the fund has not suffered any reinsurance losses since its inception. TRIF has also tapped the capital markets, issuing $100 million in catastrophe bonds in 2003.

In the wake of the Chi-Chi earthquake, Taiwan insurers have shifted to more robust excess of catastrophe losses (XoL) programs, strengthening their reinsurance protection plans.

This approach provides better coverage for large-scale losses and ensures continuity in the face of natural disasters. Insurers have increasingly adopted catastrophe models to better assess their exposure to earthquakes, and have refined these models to fit their specific portfolios.

These models help manage exposure and determine appropriate retention and limits for XoL catastrophe programs, contributing to financial stability in the Taiwan earthquake insurance market.

The TREIF program, established in 2002, covers damage caused by fires, explosions, landslides and other seismic activity. The program offers bundled coverage with residential fire policies and is sold through private insurance companies.

Total loss is determined when repair costs equal or exceed 50% of replacement value, and the home is deemed uninhabitable. Most of the fund's risk comes from mortgaged homes, where banks typically require combined fire and earthquake insurance.

Before the 1999 earthquake, only 1% of households had earthquake coverage. By the end of 2023, that figure had risen to 37.85%, covering 3.5 million households.

To meet the growing demand, TREIF has increased its event funding from $1.5 billion (TWD50 billion) in 2002 to $3.6 billion (TWD120 billion) by April 2024. If the event loss exceeds $3.6 billion (TWD120 billion), the refunds will be distributed on a pro-rata basis.

($1.00 = 32.02 Taiwan Dollar)

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