The growing number of people who live in locations exposed to natural risks such as earthquakes, floods and typhoons, along with higher concentrations of value and the increased vulnerability of infrastructure, has led to a rapid rise in mainland China's exposure to life and financial losses from natural catastrophes.
According to Ulrich Trumpp, the Germany-based chief executive, China and Southeast Asia at Munich Re, the snowstorms and blizzards that blanketed the mainland's eastern, central and southern regions during the Chinese lunar New Year holiday should have made the government, businesses and the insurance industry aware of the need to implement more realistic insurance policies.
'There is tremendous natural catastrophe exposure, particularly with regard to mega-cities and densely populated urban areas. The demand for insurance is growing as economic development proceeds, but the concept of properly priced insurance is still underdeveloped,' Mr Trumpp said. Business in terms of premium liability is deteriorating to an extent that primary insurers could be heading for a calamity.
China's latest disaster - the Sichuan earthquake and its aftershocks in which millions of people were displaced, over 15 million homes destroyed and tens of thousands confirmed dead - will no doubt vastly exceed the insured losses caused by the country's New Year snow storms which Mr Trumpp said cost the insurance industry about US$1.5billion to US$1.8billion.
Mr Trumpp said the figure for insured losses following the snow storms was relatively small due to a low insurance penetration rate. 'If the penetration rate had been higher and policies sold at the unrealistically low rate that they are currently being sold at, then the size of the payments that would have been needed to be made would have resulted in a major blow to the insurance industry.'
He said for an industrialising nation, less than 2 per cent of mainland companies held adequate insurance coverage, including for natural disasters. This compared with the more than 90 per cent of companies in Germany that held adequate coverage.
