The reinsurance industry’s hopes of expanding into the Chinese market is taking greater emphasis as the government prepares to address its growing catastrophe liabilities and create a massive — and possible lucrative — new insurance scheme.
London market stalwart Lloyd’s of London issued the latest is a series of industry white papers arguing industry relevance as Chinese leaders consider their next steps. A report issued Tuesday, titled the Global Underinsurance Report 2012, argues that 17 “high growth countries” are exposed to the long-term costs of catastrophic events by as much as $168 billion.
“The new study highlights clear risks for countries affected by this shortfall including an unnecessary burden placed on the state,” an announcement about the study says. “Low insurance penetration and high expected annual loss means that many countries show high levels of underinsurance – expressed as a percentage of a country’s GDP.”
The 17 countries listed — such as India, Indonesia and Turkey — include many of the poorest nations that have limited resources to tap the private market.
However, it’s the booming Chinese market that gains particular notice in the research, with Lloyds arguing that China insured just 1.4% of losses arising from natural catastrophes between 2004 and 2011, leaving the state to pick up a $208 billion tab for uninsured losses.
“China alone comprised $79.57bn of the estimated underinsurance. This represents 47% of the total underinsurance, making China the most underinsured country analysed in monetary terms,” the study says.
The Lloyd’s study joins several other reinsurance providers and brokers that have made a push for notice by Chinese corporates and government leaders as they plan to implement insurance reform.
In July the China Insurance Regulatory Commission (CIRC) said that it plans to speed up its coverage for catastrophes as part of a newly minted five year plan. The plan calls for the establishment of a “Catastrophe insurance system supported by national policies shall be established, with sound mechanisms for catastrophe risk diversification, transfer and compensation.”
Nearly a year ago Aon Benefied issued its own report, saying China has suffered five of the top ten deadliest natural disasters in history, with recent events affecting over 70 percent of China’s land area and more than half the population. The report adds that aggregate reinsurance premiums ceded by Chinese P&C insurers in expanded by 67 percent between 2005 and 2010.
“The CIRC’s 12th five-year plan includes the creation of a national natural disaster risk transfer program as well as the improvement of loss models and underlying data,” the Aon Benfield report said. “This could lead to potential growth in the purchasing of catastrophe insurance and reinsurance.”