The China Insurance Regulatory Commission (CIRC) is building a system that will protect policyholders against losses from natural disasters. Its focus is on coverage for earthquake damage to residential properties, said Liu Jingsheng, an official with the commission.

Natural catastrophes have caused losses averaging nearly US$18 million per day so far this year.

"China has yet to forge a sophisticated and complete catastrophe insurance system," said Liu. "The commission has enacted and revised some regulations and is coordinating with other agencies to secure maximum fiscal and taxation support for the formation of such a system."

CIRC expects to have the insurance framework complete within two or three years, according to Liu, who was speaking at the three-day International Conference on Continental Earthquakes. More than 240 experts from 42 countries gathered in Beijing to discuss emergency management and insurance.

The meeting is scheduled to end Wednesday.

CIRC has invited insurance companies from Japan, the United States, Australia and Europe to share their experience and expertise on catastrophe insurance. The commission is also encouraging domestic insurers to expand collaboration with their foreign counterparts, and is introducing reinsurance brokers, earthquake model management companies and agricultural insurers.

Widely regarded as one of the most disaster-prone countries in the world, China frequently feels the rough side of Mother Nature. Earthquakes, floods and typhoons occur frequently.

Economic losses have reached 28.5 billion yuan (US$3.4 billion) so far this year, the Ministry of Civil Affairs reported yesterday. That translates into average daily losses of at least 147 million yuan (US$17.7 million).

Currently, rebuilding after disasters is mostly financed by the State and donations. But demand for catastrophe insurance is enormous in China, Liu said. However, commercial insurance companies cannot afford to offer catastrophe insurance, given the risks and extent of losses such policies cover. Official policy support is crucial to developing the system.

Largely due to lack of policy support, China's commercial insurers employ a prudent underwriting strategy, with some declining to offer property insurance or offering it conditionally."

"But people need such insurance, especially in quake-prone rural areas," said Du Wei, a China Seismological Bureau director.

While government disaster relief usually covers only infrastructure and some damage to houses, residents are increasingly calling for their property to be protected as well.

With the backing of official policy, CIRC, together with Du's bureau and the Ministry of Finance, is putting the final touches on an earthquake-damage property insurance scheme. Liu said the plan features low premium rates and wide coverage.

Li Hong, also with the China Seismological Bureau, said insurance against earthquakes should eventually cover enterprises as well as individuals.

Liu said the catastrophe insurance system in the pipeline would allow regulators to identify and approve insurers' catastrophe reserves through fiscal policies. Tax incentives for insurance companies that will allow them to accumulate such reserves are also being developed.

"These arrangements will raise insurers' awareness of catastrophes and help form a risk control system to ensure timely compensation in event of need," Liu said.

(China Daily July 14, 2004)