At a press conference, Ma Chao, deputy head of the Henan Office of the China Banking and Insurance Regulatory Commission (CBIRC), announced that as of August 10, insurance companies in Henan had received 501,400 claims for losses caused by the rainstorm. Ma told attending media that 257,600 of these claims had already been settled, with a payout of 4.01 billion yuan ($621.71 million).
Covering both life and property, catastrophe insurance provides targeted compensation and is conducive to expanding the proportion of losses covered by insurance. Since the Central Government proposed the establishment of a catastrophe insurance system in 2013, pilot projects have been carried out by various local governments to explore customized models.
The insurance industry has been playing an increasingly important role in the compensation of natural disasters, and the 14th Five-Year Plan (2021-25) requires developing catastrophe insurance as part of the work to improve national emergency response.
Several disasters covered
"Our house was destroyed by the earthquake and we had to stay with relatives," Deng Wenxiu, a villager in Changning County, Sichuan Province, told People's Daily. When the county was hit by a 6-magnitude earthquake on June 17, 2019, Deng's house was covered by a pilot program for earthquake catastrophe insurance. Two months later, he received 20,000 yuan ($3,100) in compensation to rebuild his home.
According to the People's Daily report, the first earthquake catastrophe insurance policy in Sichuan was issued in 2015, and residential earthquake insurance now covers 19 of the 21 cities and prefectures in the province, with 57.26 million yuan ($8.88 million) having been paid in compensation.
China is one of the countries most seriously affected by natural disasters, and catastrophes such as earthquakes, typhoons and floods have caused huge losses throughout both ancient and modern history. "Earthquake insurance is the first catastrophe insurance in China, and its introduction marked a breakthrough in China's establishment of a catastrophe insurance system," Tuo Guozhu, head of the Institute of Rural Insurance at Capital University of Economics and Business, said.
Tuo said worldwide catastrophe risks include floods, droughts, storms, and earthquakes as well as nuclear power plant accidents and reservoir bursts capable of causing serious losses. In China, catastrophe insurance has been expanded to cover typhoons and floods.
Figures from the CBIRC showed that as of June, insurance companies had paid 792.8 billion yuan ($122.91 billion) in earthquake catastrophe insurance to 16.88 million urban and rural households across China.
"In 2018, typhoon Mangkhut triggered 75 million yuan ($11.63 million) in catastrophe insurance payouts to families in Yangjiang and Maoming in Guangdong Province. Our company paid the compensation within 24 hours after the wind speed index report was confirmed," Liu Jian, head of the property insurance business of the Guangdong Branch of the People's Insurance Co. (Group) of China Ltd., said.
According to Liu, Guangdong adopts an index-based catastrophe insurance model. Instead of basing compensation on actual losses, this model takes meteorological disaster indices such as typhoon wind speed and rainfall intensity as the basis for compensation. In Liu's opinion, free from damage assessment and on-site investigation, the index-based catastrophe insurance system will be able to provide immediate funds for disaster rescue and post-disaster reconstruction.
Shenzhen, a major city and special economic zone in Guangdong, initiated catastrophe insurance in 2014. Under the system, the municipal government purchases full catastrophe insurance in order to ensure that all persons residing in the city are covered against natural disasters. Residents can receive up to 250,000 yuan ($38,760) for medical expenses, disability or death caused by 16 kinds of disasters such as storms, rainstorms and earthquakes. In 2020, 4,733 persons in Shenzhen claimed catastrophe insurance, with compensation paid totaling 940,000 yuan ($145,736), according to a report by Shenzhen Special Zone Daily.
Tuo said catastrophe insurance policies in Guangdong and Zhejiang provinces are mainly purchased by the government. "It is a way of amplifying the efficiency of fiscal funds and incorporating more financial tools into public management," he said.
In Sichuan, however, the government and residents share premiums on a 60-40 basis. Those for vulnerable groups are wholly paid for by the government.
Challenges
Forty percent of worldwide economic losses caused by natural disasters are compensated by insurance, with this proportion reaching 60 percent in North America. In China, however, only some 10 percent of losses caused by natural disasters are compensated by insurance. "The problems of low coverage and insufficient protection by catastrophe insurance are still prominent," said Fang Weihua, a professor with the Academy of Disaster Reduction and Emergency Management, in his article written for China Emergency Management News.
According to Fang, the introduction of pilot programs has increased the proportion of catastrophe insurance compensation in China. However, compared with countries with more established catastrophe insurance systems, China still faces challenges. For instance, Chinese insurance companies are not experienced enough in the business and the market has not yet matured, limiting their capability to manage risks. In addition, the supply of reinsurance is seriously insufficient, weakening the companies' ability to disperse risks.
Tuo said he believes the weakness of China's current catastrophe insurance system mainly lies in the rural areas and should be bolstered as soon as possible.
"China is now the country with the largest agricultural insurance premiums in the world. However, agricultural insurance mainly covers direct costs associated with planting crops; the scope of pilot programs for full cost insurance and farming income insurance still needs expansion," Tuo said. "In addition, the protection of agriculture-related property and the personal safety of rural residents is still not enough."
