Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Analysis-Extreme weather sounds alarm for under-insured China

Economic IndicatorsAug 11, 2021 09:56PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
3/3 © Reuters. An aerial view shows rescue workers evacuating residents on a flooded road following heavy rainfall in Zhengzhou, Henan province, China July 22, 2021. Picture taken with a drone. REUTERS/Aly Song/File Photo 2/3

BEIJING (Reuters) - Devastating summer floods in the populous province of Henan in central China are a wake-up call for local authorities to seek better insurance cover against natural disasters, potentially opening up a huge market for insurers in the country.

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

Globally, insurance covers 30%-40% of economic losses from disasters, with coverage up to 60% in North America. In China, where local experts warn of more extreme weather due to global warming, coverage is just 10%, according to Swiss Re (OTC:SSREY).

"The gap between economic and insurance losses is still sizable (in China) and underpins huge potential demand for catastrophe insurance protection," S&P Global (NYSE:SPGI) Ratings said in a research note on Tuesday.

Nearly all of China's 654 major cities are prone to flooding and waterlogging, official data shows, with their rapid growth creating urban sprawls that cover floodplains with concrete.

China's insured losses from natural disasters https://graphics.reuters.com/CHINA-WEATHER/INSURANCE/jnvwegdjrvw/China%20insured%20losses%20from%20natural%20disasters.jpg

Latent Chinese demand for protection offers a potential future source of earnings for insurers, but hurdles remain, both global and local.

Globally, insurers have yet to fully factor in 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 roll out policies in both developed and emerging economies.

In China, catastrophe insurance is still in its infancy, partly due to a lack of a central government push. In China's 2021-2025 economic and social development plan, catastrophe insurance was briefly mentioned without elaboration.

Disaster insurance coverage in China is also highly dependent on local authorities, which may not necessarily be warm to the idea since they would have to pay for such policies out of their own pockets, unlike in advanced economies like Japan and Australia where it is left to the owner of a property or asset to buy what insurance they can afford or is available.

PILOTS

So far, 15 provinces and cities have signed up for pilot disaster insurance programmes, China's top banking and insurance regulator told Reuters, adding it will call for more product rollouts after recent disasters.

With the help of re-insurers in collaboration with Chinese insurers like People's Insurance Company of China (PICC) and Ping An, pilots have been launched in coastal cities such as Ningbo and provinces like Guangdong, where typhoons bring economic losses almost every year.

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

It is unclear if all the pilots have been renewed, given different local budgets and evolving metrics to accurately measure climate-change risks, which vary across China.

Heilongjiang province rolled out a pilot 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 neighbouring Heilongjiang counties that used to be insured by the pilot.

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

"Pricing is challenging, as from the business perspective, insurers have to make sure the product pricing reflects the real risks when disasters happen," said Moody's (NYSE:MCO) analyst Kelvin Kwok.

"But from the local authorities' perspective, they are purchasing coverage in events that could rarely happens."

PRODUCT DESIGN

A change in product design may entice more local authorities to sign up.

Swiss Re told Reuters it is working on a product that offers quicker assessment for flood-related disasters in China, remotely tapping data such as the depth of floodwaters and size of affected areas to gauge the severity of the situation.

Stronger support from the top is key.

"To expand coverage, regulators and the central government need to play a bigger role," said Wang He, an insurance expert and a former vice president of PICC's Property and Casualty Insurance unit involved in some of the pilots.

Greater fiscal support such as the set up of a specialised payout fund for disasters is needed, Wang said.

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

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

"We expect to see government policies like premium subsidies to prevent insurers from taking persistent underwriting losses," Kwok said.

($1 = 6.4773 Chinese yuan renminbi)

Analysis-Extreme weather sounds alarm for under-insured China
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email