Earthquake Cover for Businesses in Japan — Fire Insurance, Types of Cover and Setting the Limit

For companies doing business in Japan, earthquake is one of the largest natural catastrophe risks. Yet few companies insure their business buildings and equipment against earthquake. Some assume they are covered because they have fire insurance, but commercial fire insurance in Japan, as a rule, does not cover earthquake damage.

This article sets out how companies can insure against earthquake, and the limits of that cover, based on public material from the General Insurance Association of Japan (GIAJ), insurers and the Ministry of Finance.

A different system from household earthquake insurance

What is generally called "earthquake insurance" in Japan is a household scheme run jointly by the government and non-life insurers under the Act on Earthquake Insurance. As the GIAJ explains, it covers only residential buildings and household contents. Business buildings such as factories, offices, shops and warehouses, as well as machinery, equipment, goods and inventory, are not eligible.

According to the Ministry of Finance, under the household scheme the government shares the liability through reinsurance to prepare for claims after a major earthquake, and the total claims payable per earthquake are capped at JPY 12 trillion. There is no equivalent public mechanism for business earthquake cover. This difference leads to the capacity limits described below.

Losses not covered by fire insurance

Commercial fire insurance excludes loss caused by earthquake, volcanic eruption or a resulting tsunami. Note that this excludes not only building collapse but also losses such as:

• Destruction by a fire caused by an earthquake
• Loss from the spread of a fire caused by an earthquake
• Wash-away or flooding by tsunami
• Toppling or breakage of equipment and machinery due to an earthquake
• Lost profit because the business stopped as a result of these losses

In other words, even if a fire is the cause, ordinary fire insurance will not pay if the fire was caused by an earthquake. To cover these losses, an earthquake extension must be added.

Types of cover

According to the GIAJ, there are mainly two types of earthquake extension for businesses.

* An illustration of the calculation. Actual policies also set deductibles and other terms.

The first-loss limit type pays losses in full up to the limit, so it works well for small and medium losses. The proportional type pays a fixed share whatever the size of the loss, so it pays less on small losses but reliably covers part of a large loss. Which suits you depends on the size of loss you expect and how much you can bear yourself.

Both types usually include a deductible (the company bears losses up to a set amount). Because earthquake cover is expensive, a higher deductible is often used to keep the premium down.

How to set the limit

For business earthquake cover, insuring the full value of buildings and equipment is often unrealistic, both in cost and in available capacity. Instead, you estimate how large a loss could be and decide how much of it to insure.

1. Identify the assets: list the location and value of buildings, equipment and inventory, site by site.
2. Estimate the possible loss: estimate the loss from a major earthquake based on the seismic hazard at each location, the building's construction and age, and any seismic retrofitting. Insurers or risk engineering firms may assess the probable maximum loss (PML).
3. Decide how much you can bear: based on cash on hand, borrowing capacity and the funds needed to restart the business, decide how much you can absorb without insurance.
4. Set the limit and deductible: the gap between the estimated loss and what you can bear is the range to cover with insurance.

Companies with sites concentrated in one region may see several sites hit by the same earthquake. It is important to estimate the loss for the group as a whole, not site by site.

Business interruption losses

Earthquake losses are not limited to repairing buildings and equipment. Lost profit while the business is stopped, and fixed costs that continue in the meantime, can exceed the physical damage. Business interruption insurance also excludes interruption caused by earthquake as a rule, and an extension is needed. Business interruption losses should be estimated together with physical damage.

Why capacity is limited

Earthquake cover cannot always be obtained at the limit you want. The reason lies in the nature of earthquake risk. A major earthquake causes losses on many policies in the same area at once, so insurers manage the total amount they write in each area. In areas where assets are concentrated and seismic hazard is high, such as the Tokyo metropolitan area and the Tokai region, insurer capacity tends to run short.

Insurers secure capacity by transferring part of the risk they write to reinsurers in Japan and overseas. For this reason, the terms of business earthquake cover are affected by conditions in the reinsurance market and can change from one renewal to the next.

If one insurer cannot provide the required limit, capacity can be secured by combining coinsurance, where several insurers share the risk, with reinsurance. The reinsurance market and these structures are explained in our insights on corporate insurance capacity and coinsurance and reinsurance.

Combining insurance with other tools

Insurance alone is not a complete earthquake plan. Consider combining it with the following:

• Reduce the loss itself: seismic retrofitting, anchoring equipment, spreading inventory, securing alternative production sites and suppliers. These can improve the insurer's assessment and be reflected in the terms.
• Secure funding: build up cash reserves and arrange credit lines with banks. Insurance claims require loss adjustment, so other sources of funds may be needed immediately after an earthquake.
• Products that pay on pre-set triggers: some insurers offer products that pay a pre-set amount based on an index such as the observed seismic intensity, rather than the actual loss. They pay without waiting for loss adjustment, but the payment may not match the actual loss.
• Captives: a group's own insurance subsidiary retains part of the risk and accesses the reinsurance market directly. This suits companies above a certain size (see our insight on captives).

Points to check

• Does your current fire insurance include earthquake cover? If so, what are the type, limit and deductible?
• Does the cover include equipment and inventory, not just buildings?
• Are tsunami and volcanic eruption included?
• Is business interruption covered?
• Is the limit per site or for all sites combined?
• How is the limit treated if there are two or more earthquakes during the policy period?

How Credit Hills can help

As an insurance broker, Credit Hills approaches several insurers and compares limits, deductibles and premiums. If one insurer cannot provide the required limit, we combine an additional insurer with brokering the reinsurance behind it to secure capacity. We cannot guarantee the limit you want, but we will set out the concrete options available.

See our corporate insurance services →　See our reinsurance services →

References (in Japanese)

• General Insurance Association of Japan — Commercial fire insurance (earthquake extension)
• Tokio Marine & Nichido — Earthquake insurance for businesses
• Ministry of Finance, "Finance" magazine, September 2025 — The earthquake insurance scheme