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Japan’s Disaster Risk Financing: Framework and Policies

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Part of the Economics, Law, and Institutions in Asia Pacific book series (ELIAP)

Abstract

Throughout its history, Japan has faced various types of natural disasters, including the Great East Japan Earthquake in 2011. Against this backdrop, the country has developed a wide range of country-specific disaster risk financing (DRF) tools, and encouraged developing countries to follow suit. This chapter is the first attempt to capture the key characteristics of Japan’s own DRF tools and the cross-border DRF policies for development purposes. Specifically, Japan’s earthquake insurance, established in 1966, provides a means of burden-sharing between the public and private sectors through a three-tiered system. The government also tailors its budgetary schemes to various recovery and reconstruction needs, in accordance with the magnitude and characteristics of the disasters. Lastly, the chapter discusses sovereign risk pools and bilateral development loans, both as disaster countermeasures.

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Fig. 1

Source Author

Fig. 2

Sources Reproduced from NGDC/WDS (2018), Cabinet Office Japan (2018), and National Police Agency (2018)

Fig. 3

Source Author, based on the Ministry of Finance

Fig. 4

Source Author, based on Ministry of Finance documents

Fig. 5

Source Ministry of Finance

Fig. 6

Source Author, based on Ministry of Finance

Fig. 7

Source Author, based on Ministry of Finance

Fig. 8

Source Author, based on Ministry of Finance

Fig. 9

Source Author

Fig. 10

Source Author

Fig. 11

Source Author. Note Figures in FY2011–FY2016 are settled figures; Figures in FY2017 are based on the supplementary budget; figures in FY2018 are based on the initial budget.

Notes

  1. 1.

    National Police Agency, December 8, 2017.

  2. 2.

    Although global and regional surveys exist (OECD 2013, 2015), they lack in-depth investigations of country-specific circumstances.

  3. 3.

    The national plan elaborates on the characteristics of these three policy responses for 15 different types of disasters, including both natural and man-made disasters, as well as features that are common to all disasters.

  4. 4.

    See Articles 1 and 35 of the Disaster Countermeasures Basic Act.

  5. 5.

    The Director-General for Disaster Management in the Cabinet Office, a central government hub for DRM, secures a certain amount of its own budget for DRM (6.2 billion yen for FY2018). However, this budget item does not encompass all the spending on the DRF tools. DRF expenditure on items such as financing sources for resilient infrastructure and contingency reserves are outside this budget.

  6. 6.

    As it must be accumulated well before a disaster, the reserve can be categorized as an ex ante measure. See OECD (2012).

  7. 7.

    For instance, from FY2013–FY2017, on average, the amount of disaster recovery expenditure in the initial budget was 73,261 million yen, whereas that in the supplementary budget was 214,052 million yen.

  8. 8.

    See http://www.soumu.go.jp/iken/h28_118776.html (in Japanese only).

  9. 9.

    Nikkei Shimbun, February 8, 2016.

  10. 10.

    For instance, the government earthquake investigation committee estimates that the likelihood of a potential massive Nankai Trough earthquake in the next 30 years ranges from 70 to 80% (Headquarters for Earthquake Research Promotion 2018).

  11. 11.

    Over time, earthquake insurance has expanded its coverage, such that the current earthquake insurance can be viewed as akin to property insurance (Earthquake Insurance Project Team 2012).

  12. 12.

    The shares of the government, JER, and the private sector are 78%, 20%, and 2%, respectively.

  13. 13.

    Currently, the insurance rate is from 0.068 to 0.363%, depending on the risk of the area and whether buildings are fireproof. There is a discount if the residence is deemed resilient to earthquakes. Long-term policies also receive a preferable treatment in relation to the premium.

  14. 14.

    If the damage exceeds this limit, extra fiscal support may be considered on a case-by-case basis.

  15. 15.

    For instance, the penetration rate of Hyogo prefecture, which was the most severely affected by the Great Hanshin–Awaji Earthquake, was 4.8% in FY1994, compared to the then-national average of 9.0%.

  16. 16.

    As of November 2017, the program had provided technical assistance worth US$ 58 million and facilitated US$ 2 billion worth of World Bank loans.

  17. 17.

    Under this program, “disaster” is defined as including both natural and man-made disasters, but not conflicts.

  18. 18.

    At the Elmau Summit in 2015, under the German Presidency, the G7 countries set a goal to increase the number of people who have access to direct or indirect insurance coverage against climate hazards in vulnerable developing countries from 100 to 400 million by 2020. By combining “insurance” and “resilience”, the initiative was named “InsuResilience”.

  19. 19.

    PCRAFI covers 80% of all losses below a 1-in-20-year event, while transferring the rest of the exposure to reinsurers, 20% of all losses below a 1-in-20-year event and 100% of all losses above a 1-in-20-year event (2016–17 Business Plan).

  20. 20.

    16 CCRIF countries (2017/18 policy year), 5 PCRAFI countries (2017/18 policy year), and 6 ARC countries (2016/17 rainfall season).

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Acknowledgements

Takahiro Tsuda is grateful to Hideaki Hamada and Rie Yamaguchi for their invaluable comments. Yusuke Hayashida, Sokichi Morioka, and Shun Sakata provided much-appreciated research assistance. The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Japanese government.

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Correspondence to Takahiro Tsuda .

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Tsuda, T. (2019). Japan’s Disaster Risk Financing: Framework and Policies. In: Kamesaka, A., Waldenberger, F. (eds) Governance, Risk and Financial Impact of Mega Disasters. Economics, Law, and Institutions in Asia Pacific. Springer, Singapore. https://doi.org/10.1007/978-981-13-9005-0_2

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  • DOI: https://doi.org/10.1007/978-981-13-9005-0_2

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