The 7.2 magnitude earthquake that struck Taiwan’s east coast recently has brought significant challenges to the insurance industry. Despite causing substantial damage, particularly in Hualien with collapsed buildings and infrastructure disruptions, insurers are expected to weather the financial impact well. Government-backed schemes are anticipated to mitigate losses, although insurers may re-evaluate risk exposure and adjust premiums to maintain profitability, according to GlobalData, a leading data and analytics company.

Aarti Sharma, Insurance Analyst at GlobalData, comments: “Being located in one of the three major seismic regions globally, Taiwan is prone to natural calamities, especially earthquakes. As a result, the penetration of earthquake insurance is moderately high in Taiwan, and the current earthquake is expected to result in high claims for local insurers and reinsurers.”

According to GlobalData’s Global Insurance Database, property insurance claims are expected to account for an 11.6% share of the total general insurance claims in 2024, amounting to TWD14.1 billion ($0.5 billion). However, with this event, the actual claims in 2024 might increase once the complete impact of the earthquake is realized.

Despite the losses, the overall profitability of the general insurance industry in Taiwan is not expected to be significantly impacted, as the average loss ratio of property insurance remained low at 31.5% during 2019–23.

Additionally, most of the losses will be borne by the Taiwan Residential Earthquake Insurance Fund (TREIF). The government established the TREIF in 1999 to create an earthquake insurance pool and strengthen the earthquake insurance mechanism in the country. The earthquake insurance that is underwritten by the general insurers is ceded to the TRIEF which retains most of the risk and transfers the remaining to domestic and international reinsurers. Effective April 1, 2024, the liability assumption limit of the residential earthquake insurance’s risk has been increased to TWD120 billion ($3.7 billion).

Sharma adds: “However, in the short term, to maintain profitability, property insurers might re-assess their risk exposure, which is expected to increase the premium rates for property insurance policies and support property insurance growth.”

As a result, the property insurance industry is expected to grow from TWD51.8 billion ($1.7 billion) in 2024 to TWD66.8 billion ($2.2 billion) in 2028, in terms of gross written premiums (GWP) at a compound annual growth rate (CAGR) of 6.5% over 2024–28.

With the considerable impact of the recent earthquake on residential and commercial property, the demand for fire and natural hazard policies that cover earthquake insurance is also expected to increase in 2024 and 2025. Fire and natural hazard policies are expected to account for an 80.4% share of total property insurance GWP in 2024.

Sharma concludes: “The recent earthquake could translate into higher claims than anticipated for insurers and reinsurers in Taiwan. The increased frequency of such large-scale natural calamities is expected to further create demand for the fire and natural hazard policies in the country, which will support property insurance growth over the next five years.”