Insurers Face Claims as Supply Chains Break

Insurance companies with customers far from Japan could be on the hook for some lost profits of manufacturers whose supply chains were disrupted by the devastating earthquake.

The costs insurers will incur from such “business interruption” claims aren’t clear. But the effects of Japanese plant closures, transportation delays and power shortages could reverberate beyond the country’s borders and lead to insurance claims, say industry executives, analysts and brokers who arrange business-interruption coverage.

Woes in Japan will “have far-reaching effects, and the business interruption claims can mount very quickly,” said Rod Fox, chief executive of reinsurance broker TigerRisk.

Separately, on Wednesday, disaster-modeling company Eqecat said insured losses from Japan’s earthquake and tsunami would be $12 billion to $25 billion, an estimate whose high end is significantly lower than an earlier prediction by another firm.

Eqecat said a portion of the costs in its estimate – $2 billion to $4 billion – would be borne by the government’s Japan Earthquake Reinsurance Pool, which will reduce the total cost to private insurers.

As for the business-interruption claims, the longer the disruption, the higher they could climb. A prolonged nuclear crisis, electricity shortages or temporary shutdowns of manufacturing plants could affect hundreds of businesses in the U.S. and Europe that use Japanese-made auto parts, computer chips or other components in the production of cars, consumer electronics and other goods.