Disaster insurance rush predicted
The 8.0-magnitude earthquake that struck China’s Sichuan Province has triggered a rush on insurance protection enquiries, especially disaster insurance.
Insurers have sent emergency teams to give indemnity to policyholder victims, smooth indemnity procedures and donated about 1 billion yuan ($143 million) to support people in the quake zone.
Life insurers face indemnity claims of 400 million yuan, said Tian Hui, an Industrial Securities Co analyst.
“Life insurers are the main bearers to make indemnity for the earthquake losses,” Tuan said. “However, as the insurance penetration in the quake-hit area is relatively low, the impact will be limited.”
Calls for a new disaster insurance system have come in the wake of the powerful quake.
The China Insurance Regulatory Commission has already set up a team to research earthquake insurance, said China Insurance News.
Other than the devastating earthquake last week, there were six earthquakes greater than 5-magnitude in 2007, with direct losses of 2.02 billion yuan. In 2006, there were 14 such big-scale quakes with direct losses of 800 million yuan.
China also suffered the worst snowstorm in half a century, and the Typhoon Neoguri in April.
China's disaster industry sector is still under-developed, including earthquake insurance.
In most cases, home property insurance and auto insurance exclude earthquake as exemptions. Some insurers include it in a rider contract. For corporate property insurance, companies can also include earthquake in a rider. A rider means more expenditure.
The reluctance to buy earthquake insurance products trims the effectiveness of the insurance industry in fighting against earthquake losses.
As the possibility of an earthquake is considered low, most homes and businesses don't buy such products to save on costs. Only large corporations with ample capital are generally willing to buy the products. Life insurance normally includes earthquake coverage.
Industry watchers said more efforts were needed to develop disaster insurance in China.
Wang He, the vice president of PICC, suggested a closer cooperation between domestic and overseas insurers in researching disaster insurance. Wang said in a China Insurance News report that domestic insurers should make better use of the international re-insurance mechanisms and shift part of the risk to the global capital market.
He said there needed to be government-guided support to build up the disaster protection system.
Zhang Xi, a China Galaxy Securities Research analyst, said the quake would increase insurance protection awareness and the demand for premiums. The quick and positive indemnity response from insurers after the snowstorm strengthened clients' confidence in insurers, Zhang said. For instance, project insurance premium grew 85.8% in the first quarter while home property insurance rose 42.9%.
Insurers also moved quickly after the earthquake. The CIRC immediately launched a disaster emergency response system to smooth indemnity. Insurers also moved to pay policyholders and called for their employees to donate money and blood to the quake-hit area.
The massive earthquake would eat insurers' profits in the short term but increase the insurance awareness and help grow China's disaster insurance industry in the long run, analysts said.
“Shares of listed insurers are under pressure to drop due to the earthquake spill-over effect,” said Yu Bin, an analyst from SYWG Research & Consulting. (Xinhua)
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.