As the ravaging impact of flooding continues to take huge toll on China’s economy, the Chinese government has charged risk underwriting experts and insurance companies to develop appropriate disaster insurance products that would help in mitigating the losses associated with the catastrophic flooding witnessed in the country in recent weeks.
Specifically, the government, in a statement issued by its banking and insurance sector regulator, China’s Banking and Insurance Regulatory Commission (CBIRC), on Tuesday , urged its insurance and reinsurance industry to focus on developing new products for disaster risk transfer and to help in covering more of the natural catastrophe risks in the country, given the current evident protection gap that exists.
In the past few weeks flooding in Henan province has exposed the huge gap between economic losses from natural disasters, catastrophes and severe weather events and the amount actually covered by insurance.
Analysts noted that the Henan flooding had become the biggest insured catastrophe loss in China’s history, thereby pushing to the fore the need for the country’s insurers to expand the scope of insurance and reinsurance market, especially as it relates to disaster coverage.
The most critical of the need is for the experts to develop innovative disaster insurance products, which the Chinese government believes remains crucial to the nation’s economic recovery agenda drive. To demonstrate its concern, the government has issued a number of statements calling on the industry to innovate and produce new disaster insurance product options for the population.
The CBIRC stated that it planned to encourage insurers and reinsurers to invest more in disaster insurance in the country, especially in expanding the range of products on offer.
This is even as the Commission hinted of its plan to promote public awareness of the need for disaster insurance, to try and stimulate greater uptake and also, in the near future, to ensure that insurance financing plays a greater role in national disaster recovery.
In addition, the CBIRC stated that it wanted the industry to improve the insurance protection system for major natural disasters and further enhance the insurance industry’s ability to participate in disaster prevention, mitigation and relief.
To demonstrate that these directives come from the topmost level of government, General Secretary, Xi Jinping, has called on government to improve the ability of society to weather natural disasters, while the State Council has also noted the need for financial innovation to respond to increasing disaster losses and drive greater rates of protection.
The sector’s regulator wants to see exclusive financial services for flood prevention and disaster relief, including insurance products, while it also expects insurers to respond quickly to claims.
According to available statistical projections, the economic loss from the latest flooding is expected to be as much as 10 times the earlier estimated insurance market loss of U.S $1.4 billion.
The havocs also underlined the need for increased roles of regulation and government in encouraging greater uptake of insurance, especially in motor lines of business, as the Henan floods demonstrated that a significant proportion of the insured loss will come the motor lines. Flood coverage was only integrated into motor policies more widely after 2020 rule changes.
Analysts believe that China needs disaster risk financing to be integrated across its people, businesses and government functions, with risks pooled and then efficiently hedged into reinsurance and capital markets.
