Analysis – Extreme weather conditions sound alarm bells for underinsured China

BEIJING (Reuters) – Devastating summer flooding in populated central China’s Henan Province is a wake-up call for local authorities to seek better insurance coverage against natural disasters, potentially opening up a huge market for the country’s insurers.

Many local governments in China, especially those in typhoon-prone areas, have adopted such insurance, but regulators and experts say more needs to be done after losses in under-protected Henan hit 133.7 billion yuan ($ 20.64 billion), or 4.6% of its gross domestic product in the first half, due to flooding last month.

Globally, insurance covers 30-40% of economic losses due to catastrophes, with coverage of up to 60% in North America. In China, where local experts warn of more extreme weather conditions due to global warming, coverage is only 10%, according to Swiss Re.

“The gap between economic losses and insurance losses is still large (in China) and underlies a huge potential demand for catastrophe insurance protection,” S&P Global Ratings said in a research note Tuesday. .

Almost all of China’s 654 major cities are prone to flooding and congestion, official data shows, with their rapid growth creating an urban sprawl that blankets the floodplains with concrete.

Insured damage in China following natural disasters

China’s latent demand for protection offers a potential future source of income for insurers, but obstacles remain, both global and local.

Globally, insurers still need to fully consider climate change risks in their offerings and better protect their bottom lines as extreme events become more frequent and damaging, moderating the speed at which they deploy policies. in developed and emerging economies.

In China, catastrophe insurance is still in its infancy, in part due to a lack of leadership from the central government. In China’s 2021-2025 Economic and Social Development Plan, catastrophe insurance was briefly mentioned without elaboration.

Catastrophe insurance coverage in China is also heavily dependent on local authorities, who are not necessarily in favor of the idea since they would have to pay for such policies out of pocket, unlike advanced economies like Japan and Australia. where he is the owner of a property or asset to buy insurance that he can afford or that is available.


So far, 15 provinces and cities have signed up to pilot disaster insurance programs, China’s main banking and insurance regulator told Reuters, adding that it would call for more product deployments after the recent ones. disasters.

With the help of reinsurers in conjunction with Chinese insurers like the People’s Insurance Company of China (PICC) and Ping An, pilot projects have been launched in coastal cities like Ningbo and provinces like Guangdong, where typhoons cause economic losses almost every year.

In its renewal of a three-year catastrophe insurance policy, the Ningbo government paid 41 million yuan ($ 6.3 million) in premiums to five insurers, including Ping An, in 2021, according to public statements .

It is not clear whether all of the pilot projects have been renewed, given different local budgets and scalable metrics to accurately measure climate change risks, which vary across China.

Heilongjiang Province has launched a pilot project to protect farmers from losses caused by disasters, including floods, rain and drought. The first phase ended in 2019, after three years.

Last month, two dams collapsed in China’s Inner Mongolia region, causing downstream damage and raising alarm bells for neighboring Heilongjiang counties that were previously operated by the pilot.

The Heilongjiang government did not respond to a Reuters request for comment on the payments and pilot renewal.

“Pricing is a challenge because from a business perspective, insurers need to ensure that product pricing reflects real disaster risk,” said Kelvin Kwok, analyst at Moody’s.

“But from the point of view of the local authorities, they are buying coverage of events that might rarely happen.”


A change in the design of the product may encourage more local authorities to register.

Swiss Re told Reuters it is working on a product that offers faster assessment of flood-related disasters in China, remotely tapping into data such as flood water depth and the size of affected areas to assess the seriousness of the situation.

Stronger support from the top is essential.

“To expand coverage, regulators and the central government need to play a bigger role,” said Wang He, insurance expert and former vice president of IPCC’s property and casualty insurance unit involved in some of the pilot projects.

More tax support such as setting up a specialized disaster payment fund is needed, Wang said.

Subsidies for coverage would be a direct driver, Swiss Re said, including tax incentives for insurers who run such government programs.

Time will tell if catastrophe insurance in China is viable for insurers, Moody’s Kwok said.

“We expect to see government policies such as premium subsidies to prevent insurers from suffering persistent underwriting losses,” Kwok said.

($ 1 = 6.4773 Chinese renminbi yuan)

(Reporting by Cheng Leng and Ryan Woo; Additional reporting from Beijing Newsroom, Aaron Sheldrick in Tokyo and John Mair in Sydney; Editing by Raju Gopalakrishnan)

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