Natural disasters strike China with deadly regularity. This country suffers more than its fair share of floods and earthquakes, whilst typhoons regularly wreak havoc on southern coastal areas.
Rural Disasters Not Yet Impacting Insurers
Fortunately, 2011 was relatively quiet in terms of such catastrophes, although severe flooding for several months during the summer across central and southern parts of the country killed 355 people, affected around 40 million and is estimated to have caused economic losses of around $6.5 billion.
As frequently happens in such events, however, the insured losses were only a small fraction of the overall loss figure. In the devastating 2008 Sichuan earthquake for example just 5% of the total damages were covered by insurance. This is because, particularly in rural areas, insurance penetration is still very low in China. The insurance market here will need to continue to grow at the current rates of 20%-30% annually for many more years before we see rural catastrophes having a significant effect on insurers’ bottom lines.
Urban Disasters a Different Story
The same might not be the case should an earthquake hit one of the more developed cities. The terrible 1976 Tangshan quake that struck as people slept, level led a Northern Chinese city of 1.6 million, killing a quarter of a million people in seconds. Should a similar disaster affect the nearby major port city of Tianjin, the insurance industry would take a major hit.