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Natural disasters fuel demand for insurance cover

By Hu Yuanyuan (China Daily)
Updated: 2009-07-10 08:05

Zhang Li, a 35-year-old company executive in Ningbo, a coastal city in eastern China's Zhejiang province, is making a number of calls these days to find an adequate family property insurance policy.

A man walks past a PICC advertisement in Beijing. [China Daily]

In fact, what is different this time around is that Zhang is proactively contacting insurance companies whereas in the past she used to hang up on calls from insurance agents.

What led to the sea change are the torrential rains and floods that hit southern China during the end of June. According to the Ministry of Civil Affairs, floods have battered 12 provinces and resulted in direct economic losses of around 13 billion yuan ($1.90 billion) as of July 5.

Though Zhejiang, where Zhang lives, is not among the 12 flood affected provinces, she has decided to be prepared in advance for the typhoons that hit in July and August.

According to the China Insurance Regulatory Commission, the premium income for accident insurance in Deyang, Mianyang and Guangyuan, the three cities battered by the Wenchuan earthquake last year, increased 98.79, 98.34 and 265.43 percent respectively in the first five months of this year.

The snowstorm in the beginning of 2008 led to an 85.8 percent premium growth in project insurance and 42.9 percent rise in family property insurance during the first quarter of last year.

However, the huge claims from major disasters may also erode insurance companies' profits.

PICC, the country's largest non-life insurer, saw its net profit drop 98.3 percent year-on-year in 2008.

China's current insurance coverage is still incapable of offering adequate compensation for losses from catastrophes.

Related readings:  Weather disasters may rise  China grappling with extreme summer weather  Chinese government allocates $30m for disaster relief  Chinese insurers pay 1.66 billion yuan in claims to quake areas

"Around 30 percent of the losses from catastrophes in developed countries are covered by insurers, while the percentage is lower than 5 percent in China," said Wei Yingning, vice-chairman of the China Insurance Regulatory Commission. "China should establish catastrophe insurance as soon as possible," he said.

Statistics from the Ministry of Civil Affairs suggest extreme weather conditions caused an annual economic loss of over 176.2 billion yuan on average in the 1990s. But the figure rose to an annual average of 244 billion yuan between 2004 and last year. In 2008, all types of natural disasters resulted in direct economic losses of 1,175.2 billion yuan.

But the catastrophe insurance scheme, though proposed many times in the past few years, is still in the preparatory stages.

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