Quake aftermath: Low insurance penetration woes

The plight of Sichuan residents and business in the aftermath of the recent 7-magnitude earthquake has been highlighted in local media due to low insurance penetration in an industry with assets worth CNY16 trillion.

Many damaged houses or buildings, especially private ones, were not covered with sufficient insurance. Other guest houses and hotels are now struggling to find ways to recover – especially since the earthquake has also driven away tourists. Many Chinese farmers, factories and shop owners are still exposed to natural disasters without financial protection.

Following the earthquake in Sichuan province in 2008 that killed more than 69,000 people, insurers in China paid out CNY1 billion in compensation – less than one percent of the official estimates that put the damage to property at CNY845 billion according to a report in the South China Morning Post.

By contrast, insurers in New Zealand covered 80 percent of the losses caused by an earthquake in Christchurch in February 2011.

A decade later, the situation has not improved much. The temporary booths set up by the China Pacific Insurance and the People’s Insurance Company at the scene of the Sichuan earthquake were receiving few visitors.

“There is a lack of catastrophe insurance,” said Li Jian, an Hong Kong-based analyst of the Chinese insurance market from Autonomous Research.

“Although the government has offered support for it, little progress has been made thus far.”

China’s life insurance accounts for about 2.4 percent of its GDP, falling behind more than five percent in many European economies as well as Hong Kong and Taiwan. Non-life insurance, including property and health, was less than two percent of China’s GDP, compared with more than five percent in US and South Korea.