Mainlanders lack cover for disaster risk

PUBLISHED : Friday, 04 June, 2010, 12:00am
UPDATED : Friday, 04 June, 2010, 12:00am

While both China and Chile have been hard hit by earthquakes, it is the Chileans who tend to be better insured, indicating that mainlanders are underprotected against losses from natural catastrophes.

The frequency of earthquakes in recent years has been a challenge for insurers as policy holders file claims for loss of life and damage to property, according to Tobias Farny, Munich Re's chief executive for Greater China and Southeast Asia.

'However, paying such large claims is our business, and Munich Re has the risk management expertise that is necessary to compensate for such events,' Farny said.

In the first quarter alone, Munich Re, the world's biggest reinsurer, estimated that it faced gross claims from natural catastrophes of Euro700 million (HK$6.69 billion), with about Euro500 million stemming solely from the earthquake in Chile.

But he expects its payments for the earthquake in Yushu, Qinghai province, in April to be comparably small, as were the payments for the Sichuan earthquake two years ago.

The economic loss in Chile amounted to US$30 billion, while in Sichuan it was US$85 billion.

Chileans are better protected, and Farny estimated that the total insurance loss for all insurers from the earthquake reached US$4 billion to US$7 billion. In comparison, the total insurance payout for the Sichuan earthquake was only US$300 million.

This was a result of the low insurance penetration rate. On average, each mainlander spends US$105 per year on insurance products. This compares with spending of US$2,938 a year by Germans and US$3,620 by Americans.

The lower figure for China also reflects the fact that most property insurance policies sold on the mainland do not cover earthquakes.

This situation is not unique to China. Haiti suffered a deadly earthquake this year, with the economic damage estimated at between US$8 billion and US$14 billion. But the insurance payout is expected to be just US$150 million to US$200 million because Haiti, too, has a low insurance penetration rate.

The largest loss caused by a natural catastrophe was when Hurricane Katrina hit the US in 2005, which cost insurers US$62 billion, with Munich Re paying US$1.6 billion.

In China, Munich Re was trying to convince regulators, the government and insurance companies to encourage individuals and companies to ensure they had adequate coverage, Farny said.

The company's statistics showed that on the mainland, the total premium for life and general insurance represented 3.3 per cent of its gross domestic product, compared with 6.6 per cent in Germany and 7.8 per cent in the United States.

'This situation is typical for an emerging economy. However, with rising prosperity, people and companies become more risk-aware and want to insure their belongings,' Farny said.

'This is a natural development in economies when people start to accumulate wealth such as cars, housing or electrical appliances.'

Munich Re Greater China chief executive John Wilkinson said mainlanders were becoming more aware of the need for insurance coverage. The mainland's life insurance market has grown at an average 25.2 per cent annually over the past decade. For the general insurance sector, the growth was 18.6 per cent.

'Looking ahead, China will continue to be our major growing insurance market, with its many infrastructure projects. In addition, people will be more aware of the need to protect their families, their cars and their properties against catastrophes,' Wilkinson said.

Farny said awareness of the need for protection against natural disasters was more extensive elsewhere in the region. Munich Re paid large claims for the Taiwan earthquake, as well as for flooding in Indonesia and the Philippines.

'We will bring new products to the mainland and Asia markets to help people cover risks against natural catastrophes,' Farny said.

He said Munich Re had stationed an earthquake specialist in its Beijing office.

The company has also been studying the risks of climate change for more than 30 years. Global warming presented risks but also opportunity for the mainland, he said. Innovative green industries like solar or wind power needed funding and coverage. Munich Re has just started to offer guaranty solutions for solar panels, covering the performance warranty for modules over 25 years.

Munich Re was the first foreign reinsurance company to get a licence on the mainland, in 2003, allowing it to do business nationwide. Reinsurers do not directly sell policies but work with direct insurance companies to share their risk portfolio and assist with risk management and research.

In China, Wilkinson said the major growth area would be insurance for property and vehicles, as well as product liability. Many exporters wanted liability insurance to cover losses from compensation sought for product quality problems or damage caused by product deficiencies. They also wanted cover for product losses during shipment, he said.