Despite China being the world’s second largest economy with an insurance sector worth over RMB16 trillion (US$2.4 trillion), the magnitude 7.0 earthquake that struck Jiuzhaigou County in Sichuan Province exposed the lack of insurance penetration and inadequacy of the country’s disaster insurance system.
While high net-worth investors in China’s cities buy policies, many farmers, factories, and shop owners – especially in rural areas – lack the insurance to protect them from the losses brought about by natural disasters such as earthquakes and typhoons.
In 2008, Sichuan Province was also devastated by a magnitude 8.0 earthquake, but only RMB 1 billion (US$150.15 million) was paid out by Chinese insurers, a minuscule amount compared to the property damage estimates of over RMB845 billion (US$126.9 billion).
In contrast, over 80% of losses in the 2011 Christchurch earthquake in New Zealand were covered by insurers.
Almost 10 years later, there hasn’t been much change in China’s situation. Insurance companies, including
China Pacific Insurance and the People’s Insurance Company, have set up temporary offices near the earthquake scene, but there were only a few visitors.
“There is a lack of catastrophe insurance,” Li Jian, a Hong Kong-based analyst of the Chinese insurance market from Autonomous Research, told the South China Morning Post.
“Although the government has offered support for it, little progress has been made thus far.”
In the recent earthquake, provincial authorities have estimated the economic damage at RMB110 million (US$16.5 million) with 25 dead and over 500 injured. The lack of insurance coverage in the region will make it hard to fund reconstruction efforts, with the government planning to take out loans from international organisations. According to experts, this move could heighten the country’s debt risk.
Despite rapid growth over the past few years, China is still lagging behind most of the developed world in terms of insurance. Its life insurance sector makes up around 2.4% of its GDP, compared to over 5% for many European countries, as well as Hong Kong and Taiwan. Meanwhile, its general insurance sector contributes less than 2% of GDP – far below developed countries such as the US and South Korea, which sit above 5%.
Chinese President Xi Jinping was quoted at a nationwide financial work conference held last month, saying that the country’s financial industry must return to its rootsto “service social and economic development”. It remains to be seen how the government and the insurance industry will react.
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