Rescue workers evacuate stranded people from the flooded urban area of Weihui City in Xinxiang, central China’s Henan Province, on July 27, 2021.
Li An | Xinhua News Agency | Getty Images
Heavy rains and floods in China hurt insurance company profits and highlight the deficits in the country’s natural disaster insurance system.
Last month’s Henan flood resulted in a record $ 1.7 billion in damage to companies that affected property, according to a report by S&P Global Ratings that recorded the August 3 losses. and offer accident insurance.
Central Henan Province saw the highest rainfall since 1951, when the first records were available, state weather officials said.
Floods and mudslides in the region claimed over 300 lives, reported the state-sponsored tabloid Global Times. More than 1 million hectares of arable land were damaged and over 35,000 homes across the province were destroyed, the state-run Xinhua News Agency reported, citing official data. Direct losses of over 133.7 billion yuan (US $ 20.63 billion) were incurred, the report said.
“We anticipate insurance claims from the (Henan) flood … will exceed CNY 8 billion ($ 1.23 billion), or about 0.7% of China’s total 2020 non-life insurance premiums,” Fitch Ratings said in a report dated July 27th.
“Fitch believes the flood damage will be significant for the insurance industry as the number of claims reported has continued to increase,” the report said.
Role of Insurance in China
China has been hit by natural disasters such as cyclones, earthquakes, and floods for decades.
In addition to the Henan floods, more than 80,000 people in Sichuan Province were also evacuated earlier this month due to heavy rainfall and flooding.
However, insurance still plays a weak role in China’s disaster loss compensation system, according to a report by the World Bank.
Compensation for losses related to catastrophic events was largely based on government aid programs and public donations – insurance claims account for less than 1% of direct economic losses in major disasters, the report said.
According to S&P, insurance companies do not take into account the frequency of these disasters and continue to use outdated models to sell insurance packages.
In addition, there is a lack of public awareness and Chinese citizens are unwilling to accept catastrophe insurance, a separate study on social factors and insurance shows.
The problem of underinsurance can be addressed at two levels, S&P said.
From an individual point of view, S&P predicts that the record flooding in the past two years could lead to “greater awareness among the population” and to an understanding of the need for insurance cover.
The recent extreme weather events have also caused a stir at the government level. China has renewed its push to increase catastrophe insurance penetration, S&P said.
To overcome public awareness of disaster insurance, some local governments – including those in Ningbo, Shenzhen and Guangdong – have bought policies on behalf of their citizens, according to the Global Facility for Disaster Reduction and Recovery (GFDRR), a World Bank program.
Urbanization is a risk factor
Rapid urbanization in China has played a role in recent extreme weather events such as severe flooding and global warming, climate experts say.
China’s megacities and other large, developed areas cover exposed areas with concrete, making it difficult for rainwater to run off and increasing the risk of waterlogging.
Severe flooding from climate change is expected to get worse, with an increase in the frequency and severity of extreme weather events, according to a World Bank blog. “This is especially true in urban areas, where impermeable land surfaces reduce infiltration and increase the risk of flash floods during storm events.”
According to S&P, more insurances are needed to protect against flood events and providers must be “more sensitive to flood-related risks” when selling insurance.
Flood and typhoon insurance and their risk models are still underdeveloped in China, according to the international civil protection program GDFRR.
According to S&P, insurers need to take this urbanization into account and regularly update their disaster models, which are computerized systems that generate simulated events and take into account various risk factors to determine the potential amount of damage.