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英文财经 |
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Will China's Earthquake Permanently Alter the Insurance Industry? |
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星期五, 七月 11, 2008 08:57:36 |
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by
Christopher Westfall, Managing Editor, Insurance Insider |
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The earthquake that has devastated Western China will affect the country's developing insurance industry for years to come.
China and other developing economies such as India have experienced their share of natural catastrophes, but many of those took place prior to their rapid economic growth of the last decade. Today, the economic repercussions of a natural catastrophe can be felt worldwide.
Not least of which is its effects on the insurance business, which is watching how the private market reacts -- and if the tragic events in China will change the direction of catastrophe coverage in emerging markets.
"I have a sense that this is the first major [natural catastrophe] since [China's] phenomenal growth," says Domenico del Re, senior model manager at Risk Management Solutions (RMS) in London. "And it's a major catastrophe close to a great deal of commercial exposure, so this could be a real test of the local insurance industry."
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On May 12, a magnitude 7.9 earthquake took place in the eastern Sichuan province of China. The death toll totalled approximately 70,000 on June 10, and many buildings have either collapsed or have incurred major structural damage, according to published reports.
The quake's epicenter was about 55 miles east of Chengdu, the province's capital, a hub of industrial growth for China over the past decade. Estimates vary, but catastrophe modeling firm AIR Worldwide suggests total property losses could reach $20 billion while insured losses could top $300 million.
All catastrophes can devastate developing economies, in part because they are lacking a private insurance market. The government must bear the financial losses, just when they are least prepared due to a slowdown in economic activity caused by the catastrophe.
According to RMS, in emerging markets with low insurance penetration, an individual's loss to annual earnings ratio is 9:1 (that means a family earning $6,000 per year would suffer a loss of $54,000 if their home were destroyed. Small business owners' loss to annual earnings ratio is 3:1, RMS says.)
For that reason, it's unlikely that the recent quake will mean significant losses to the insurance industry.
"Although terrible devastation has been caused by the earthquake, it is likely that insurance payouts will be relatively low," says Edwina Lee, partner with KPMG China. "This is because many property and casualty insurance policies exclude earthquake risks and life insurance penetration in China is low."
For Corporations, an Infrastructure Disaster
Although losses for private Chinese insurers will be low because their lack of exposure, the quake is likely to illuminate their future behavior.
For multi-national corporations, losses may not come from collapsed buildings but devastated infrastructure following the catastrophe, says RMS's del Re.
"We can estimate our industry loss, but what [is] more difficult is [estimating] the contingency costs in failing infrastructure," he says. "For example, Sichuan is a very highly developed province that has over 30 Fortune 500 companies. If they can't get their products out because a bridge has failed, the losses could be significant."
The quake comes at a critical point in the growth of the catastrophe coverage market in China and earthquake insurance in particular.
Until 1996, the Chinese government had an earthquake insurance program in place. Since then, a combination of the government, private and public investment and private insurance have provided coverage for earthquakes.
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A major problem in developing economies for new domestic insurers is that they lack underwriting and actuarial skills, and will underprice coverage to gain new business, says Fang Li, head of Aon's China desk in London. Li says Chinese property rates are much lower than risks would mandate due to the high competition and capacity in the local market.
"Hopefully this catastrophe will educate the local insurance market and direct their concentration to risk prevention instead of price competition," Li says.
Such maturation also means implementing modern underwriting techniques, such as using catastrophe models to price coverage, says RMS del Re. "Catastrophe modeling isn't as prevalent in many developing economies, but as foreign insurers enter the market, they will bring those methods with them," he says.
Del Re adds that rapidly developing nations need to adopt catastrophe modeling to help the local insurance market.
And to do that, model makers need better access to scientific data in emerging countries while local insurers and risk managers need a better understanding of models.
"Models, at the end of the day, are tied to the user's ability to capture the proper information," del Re says.
Foreign Competition Needed
The Chinese insurance market also needs changes in regulation to allow foreign insurers to enter the market, says Aon's Li. That would disperse risk shouldered by domestic carriers; the losses from the recent quake are likely to fall on domestic private insurers because of China's regulatory structure.
According to regulations, local insured must buy cover from a local registered insurance company, which includes Chinese insurers and foreign insurers that have obtained business licenses.
"The market share of the foreign insurers is very small," Li says "The main impact of the earthquake will fall on the local Chinese insurers, as well as the local registered reinsurance companies."
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文章来源：KPMG |
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