Economic Fall-out from China Quake May Exceed $20B, Losses Largely Uninsured
The economic cost of the Sichuan, China earthquake may well exceed $20 billion, according to AIR Worldwide. However, the majority of these losses are not insured, estimated at no more than $1 billion by the risk consulting firm.
AIR Worldwide said in a statement that the purchase of insurance in the region struck by the earthquake is “minimal for residential properties and only marginally higher for commercial properties." And, "although earthquake coverage is mandatory for policies covering construction projects, … in many cases companies do not purchase insurance for smaller projects.”
AIR's estimates are also confirmed by the China Insurance Regulatory Commission. The commission estimates that just 5 percent of the more than $20 billion of damage from the quake in Sichuan province is covered by insurance. By contrast, about half of the $120 billion of estimated costs from Hurricane Katrina, the most expensive storm in U.S. history, was insured by companies or the federal government, data compiled by analysts at Jersey City, New Jersey-based Property Claim Services show.
It's estimated that over four million homes in Sichuan province were damaged by the quake. In the relatively well-off city of Chengdu, the provincial capital, where property was most likely to be insured, few buildings were badly damaged. Instead, the vast majority of the destruction has been in the poorer small cities, towns and villages where houses, sometimes shoddily built to begin with, were often uninsured.
"The earthquake underscores how much room insurers have to penetrate into rural China,'' said Zhang Ling, who oversees $1.1 billion for ICBC Credit Suisse Asset Management Co. from Beijing and holds Ping An Insurance (Group) Co. shares. "There'll be much more momentum and government support to do that after this year's natural disasters.''
China Life Insurance Co. and Ping An, the nation's biggest insurers, have yet to extend their reach across China, where only 4 percent of the nation's 1.3 billion people have insurance, according to data compiled by KPMG International. By contrast, 77 percent of Americans own some type of life insurance policy.
Published on May 16, 2008
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