China looks to insurance to stem mounting disaster loss

BANGKOK: When heavy rains triggered floods in China last year, washing away homes, causing landslides and flooding farmland, the damage resulted in overall losses of $20 billion — making it the world’s second costliest disaster in 2016.
Yet with only 2 per cent of that insured, according to German reinsurer Munich Re, many communities and businesses in central and southern China are still struggling to rebuild without the help of an insurance payout.
In contrast, when Typhoon Haima made landfall last October in Guangdong, it triggered a payout within days, thanks to a new pilot insurance scheme to cover the province against losses of up to $350 million from tropical storms and excessive rain.
The economic hub is one of China’s most important, contributing more than $1 trillion to the country’s gross domestic product.
Between 1995 and 2015, China suffered the largest number of disasters globally, second only to the United States, with 2.3 billion people affected, according to the United Nations.
China’s vulnerability to storms, droughts and other extreme weather events is expected to rise with climate change.
However, the country remains underinsured against large-scale natural disasters, putting a strain on public finance and leaving millions of people at risk of poverty, analysts said.
The insurance gap was particularly acute during the 2008 Sichuan earthquake, which killed more than 80,000 people and caused an estimated $125 billion in damages — of which only 0.3 per cent was covered by insurance, according to Lloyd’s of London.
“We saw the insurance payout was incredibly low,” said Wang Ming, professor at the Academy of Disaster Reduction and Emergency Management at Beijing Normal University.
“The local government, academics and the insurance industry all believe China should have a national policy to develop a natural disaster insurance scheme,” he
said.
There have been some encouraging signs.
Last year, seven Chinese ministries noted the need for insurance to protect against climate-related events in their guidelines for establishing a green financial system to support environmental protection and clean energy.
Earlier this month, an agreement to establish and promote earthquake insurance systems was signed by the China Insurance Regulatory Committee and the China Earthquake Administration. — Reuters