Here’s this week’s Media Mix, which is about earthquake insurance. At the end of the second paragraph I mention that the number of policy holders has tripled since last year’s Great East Japan Earthquake, but that’s a misleading statement. Actually, sales of policies have tripled in the last year, though I’m not sure how that translates to the amount of increase in actual policy holders. In any case, the point is that nothing increases commerce in a product as effectively as clear proof that the product is needed. But the trouble with insurance as a product has always been the dynamic between what buyers expect to get from it and what sellers are willing to give.
Japan is famous for being a great insurance market. It’s why the United States has always pressured the Japanese government to dismantle at least part of its publicly subsidized health insurance schemes. The American insurance industry thinks of such schemes as being anti-competitive, but they also know that they can sell a lot of policies if consumers thought their national health insurance didn’t cover everything. It’s the key to the success of companies like Aflac, which sells supplemental health insurance. Property insurance, however, is a completely different story. As pointed out in the column, insurance companies had to be persuaded by the government to offer earthquake insurance. The industry understood that it could not afford to pay for damage from the massive earthquakes that visit Japan on occasion, so the government promised to back them up. Nevertheless, until the Great Hanshin Earthquake, sales of such policies, which are basically add-ons to fire insurance and limited in terms of payouts, were low, and it’s because most people don’t really believe that insurance companies are going to willingly give people money in the event of an earthquake. In the Asahi Shimbun article, a journalist who covers the insurance industry told the newspaper that most people’s experience with non-health and non-life insurance is limited to auto insurance, since it’s mandatory if you own a car. These people know how difficult it is to get insurance companies to pay after accidents and all the trouble you have to go through with forms and inspections. They know insurance companies don’t want to pay, so most likely they feel the same way about earthquake insurance, meaning that if they take out a policy and their home is damaged in a quake, it will be difficult to get the money out of the company.
And that seems true up to a point. The media, of course, makes a lot of money from insurance ads, though mostly from supplemental health insurance and to a lesser extent (satellite TV) auto insurance. I don’t think I’ve ever seen a property insurance ad, which makes you wonder if the industry thinks it’s even worth trying to sell. This isn’t to say that consumers automatically assume insurance companies are going to try and swindle them; only that people probably understand that there isn’t much anyone except the government can do in the event of a disaster like the one that struck last year. The product of this kind of mixed mindset–insurance companies reluctant to push earthquake insurance, consumers suddenly aware of the risk to their property–results in the sudden sales burst and then media coverage of what earthquake insurance actually provides. In truth, it doesn’t provide much of anything except maybe a little more peace of mind until disaster actually strikes. The real issue that emerges from this coverage of quake insurance is the level of financial preparedness for the Big One. If insurance companies can’t be expected to cover all that damage, what can individuals do to ensure that their lives won’t be totally destroyed afterwards? This is the crux of the whole “individual responsibility” (jiko sekinin) dogma and its attendant obsession with “moral hazards.” The media, the government, and the citizens have to talk about it, but first they have to admit openly that the Big One is coming and they aren’t prepared for it. Talking only about the consumption tax is like discussing funeral arrangements for a living person without saying anything about that person’s health.