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FIGURE 1 Earthquake epicentre distribution in China.


(© The Science Press and Beijing Normal University, 2004)


LOW PROTECTION BUT WITH INCREASING DEMAND FOR


INSURANCE Only a tiny fraction of the potential losses in China is insured. Despite


the strong relative growth in recent years, insurance penetration in China remains at a very low level: it was only 3.8 percent in 2010, according to Swiss Re’s Sigma study World Insurance in 2010, which was released on July 6, 2011.


Insurance protection for residential property and small to medium-


scale domestic enterprises is even lower. As a consequence, insurance compensation following natural catastrophes such as earthquakes has been only minimal to date. For example, less than 1 percent of the economic loss caused by the May 2008 earthquake in Sichuan was covered by insurance.


The good news is that the awareness for insurance has increased


significantly since the above-mentioned earthquake. The recent earthquakes in China, Japan and New Zealand have boosted awareness even further.


In the current standard policy wording in China, earthquake insurance is not included, but might be offered for an additional price. Banks do not require earthquake insurance for their mortgages. The current increasing awareness of earthquake risks will probably turn into a higher demand for such coverage.


For commercial and industrial risks, several factors such as the


increasing capability of modelling, the improved awareness of insurance companies for the potential financial impact of a large event and the continuous growth of exposure should lead to a higher demand for reinsurance coverage.


Favourable government policies, eg, making cover compulsory or


providing financial subsidies/tax incentives, will also assist towards increasing insurance protection on earthquake risks for personal lines.


POOLING WOULD BE WISE Because of the serious earthquake hazard in many densely populated areas of China, the creation of a pooling scheme would be a wise decision.


October 2011 | INTELLIGENT INSURER | 53


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