BIZCHINA> Center
Running for cover
By Hu Yuanyuan (China Daily)
Updated: 2008-06-02 10:48

Catastrophe insurance

As the occurrence rate of catastrophes such as earthquakes, floods and hurricanes, is statistically low, people and businesses are generally reluctant to buy policies. On the other hand, any single commercial insurance company can also hardly manage such huge losses.

According to Pang Jiying, vice-chairman of China Reinsurance (Group) Corporation, China has long relied on State finance and public donations in disaster relief and recovery, with only about five percent of direct economic losses covered by commercial insurance, much lower than the global average of 36 percent.

"The absence of a catastrophe insurance system will bring about huge hidden risks for China's future economic and social development," says Wang He, vice-president of the PICC Property and Casualty Company Limited, China's leading property insurer. "It's an urgent need to establish such a system."

For example, the Sichuan quake could threaten financial stability if banks are faced with more bad housing loans due to the deaths or sudden poverty of homeowners, says Wang.

Once economic losses surpass 5 percent of the annual national GDP, disasters will obviously impact prices and economic development, says Wei Hualin, head of the Wuhan University's insurance economics research institute.

"Catastrophe insurance must be a multilevel system involving insurance companies, domestic and international reinsurance companies, government departments and even capital markets," says Gu Wei, general manager of the Claim Department of PICC Property and Casualty Company Limited.

According to Hao Yansu, an insurance professor with the Central University of Finance and Economics: "The major driver for the system is the sound financial support from the government, whether by offering subsidies or preferential taxation policies."

"The process of establishing a catastrophe insurance plan will definitely be accelerated due to the earthquake," says Yuan Li, a spokesman for the China Insurance Regulatory Commission, adding that this work may begin after the rescue and initial recovery work is concluded.


(For more biz stories, please visit Industries)