Short history of TREIP (Taiwan Residential Earthquake Insurance Program)

On Sept. 21, 1999, Central Taiwan Suffered a serious earthquake known as The Chi-chi earthquake measured 7.3 on the Richter Scale. It caused NT$300 bn (US$9.09 bn) in economic losses, and NT$27.6 bn (US$0.84 bn) in insured losses. It destroyed 52 thousands households, but the insured loss of residences was only NT$39.4 million (US$1.22 million) due to the fact that only about 1% of residences in Taiwan had earthquake insurance at that time. Prior to the Chi-Chi earthquake, residential earthquake insurance was only provided as an endorsement to long term fire policies.

The Chi-Chi Earthquake caused enormous economic loss for the government and people. Take this experience to prevent such kind of disaster being happened again, Taiwan’s Ministry of Finance (MOF) created the Taiwan Residential Earthquake Insurance Program, or TREIP, as part of the implementation of a comprehensive disaster prevention and risk management program.

TREIP was created within Taiwan’s Insurance Law, by the introduction of Article 138-1, which became effective on July 9, 2001, and was operated from April 1, 2002.

Taiwan residential earthquake insurance risk transfer scheme

According to the risk analysis by risk evaluation company -- EQECAT, the MOF determined that the earthquake scheme would have a cap of NT$50 billion which showed 400 years return period at the first stage of the implementation. Following the increased take-up rate and accumulated risk, the limit of the scheme was increased to NT$60 billion as of 1st January, 2007. The risk transfer structure of the NT$60 billion scheme is showed as below. In the event that losses exceed the capped amount, policyholders would be paid on a pro rata basis.

P&C insurance companies shall cede all the written risks to the TREIF and then participate in the risk transfer structure of the scheme by assuming the first NT$2.4 billion. Above that level the TREIF (Taiwan Residential Earthquake Insurance Fund) retains the risk up to NT$48bn and transfers losses in excess of NT$20bn and up to a further NT$20bn to the reinsurance market.  Above NT$48bn, and up to the Scheme limit of NT$60bn, the TREIF transfers the risk to the Taiwan government.