Quake unearths vast insurance gap

The most powerful earthquake in China since 1950 shows the nation's insurance industry is decades behind those of the world's other biggest economies.

Just 5 percent of the more than $20 billion of damage from the quake in Sichuan province is covered by insurance, according to estimates from an official at the China Insurance Regulatory Commission. 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, N.J.-based Property Claim Services show.

“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.

The 7.9-magnitude quake has killed more than 22,000 people since May 12, damaged and destroyed homes and buildings in 44 counties and districts in Sichuan, and directly affected about half of the 20 million people who live in the region. At least 30,000 people remain buried under rubble.

China's quake occurred four months after the country's worst snowstorms in 50years forced the evacuation of more than 1million people and damaged at least 1 million homes. Insurers probably will get more aggressive about pursuing policy sales in rural areas as this year's 26 percent decline in China's benchmark CSI 300 Index threatens earnings growth, Zhang said.

China Life's net income dropped 61 percent in the first quarter, while Ping An's rose at the slowest rate in the same period since the company's initial public offering in 2004. China Life fell 19 percent in Hong Kong trading this year and Ping An declined 16 percent.

Developing rural and natural disaster insurance is a top priority for the Chinese government, and there's even greater momentum now, according to the industry regulator official in Beijing. China may soon set up a natural disaster insurance system, which would be subsidized by the government and include private-sector involvement, said the official, without providing further details.

China's insurance penetration, which measures premiums as a percentage of gross domestic product, was 2.9 percent last year, ranking 49th in the world, according to statistics compiled by Zurich-based Swiss Re. That compares with 9 percent in Western Europe and 7.6 percent in the U.S. in 2006, the latest available figures for those regions from Swiss Re.