China is to broaden the investment channels of insurance funds, allowing them to invest in real estate industry, if a draft revision to the Insurance Law is adopted by the country's legislature.

The investment channels of insurance funds would be widened to marketable securities such as bonds, stocks, funds and real estate, according to the draft submitted to the Standing Committee of the National People's Congress (NPC) on Monday.

The current law only allows insurance funds to invest in government bonds and financial bonds.

"The move will be favorable for both the insurance and real estate industries," said Zhang Hanya, director of the Research Institute of Investment under the National Development and Reform Commission.

He said it would help insurers expand business and reap profits while increasing capital supply to the real estate industry, which was squeezed by the credit crunch as the country's central bank stuck to its tight monetary policies to fight inflation.

The capital insufficiency in the real estate industry was estimated at 400 billion yuan (58.6 billion U.S. dollars) by the end of June, according to Zhong Wei, chief of the financial research center at Beijing Normal University.

The Insurance Law came into effect on Oct. 1 in 1995. Its first revision was in October, 2002, and the revised version was effective on Jan. 1, 2003.

"It is necessary to revise the law to boost the steady and fast development of the insurance industry. It will help to better regulate insurers' business conduct, prevent and control risks and protect insurants' interests," said China Insurance Regulatory Commission chairman Wu Dingfu, explaining the draft at the fourth session of the NPC Standing Committee.

The legislative session is scheduled to end on Friday.

China's insurance industry saw premium income rise to 561.79 billion yuan in the first half, up 51 percent over the same period last year.

The revision also highlights tighter supervision of insurance fund use, in a bid to prevent investment risks.

Against a backdrop of frequent natural disasters, such as the severe winter weather at the beginning of the year and the May 12 earthquake in Sichuan Province, the NPC financial and economic committee urged the establishment of disaster insurance system to cover heavy losses, the committee said in a report submitted to the country's top legislature.

Indemnity claims covered only 1 percent of the losses caused by natural disasters, much lower than the international average of 30 percent to 40 percent, according to the committee.

The worst snow storms in 50 years caused more than 111.1 billion yuan in losses by the end of June, while the quake losses were estimated at more than 1 trillion yuan, according to government statistics.

However, insurers only paid out 5 billion yuan in snow storm claims. They had paid 339 million yuan for quake claims as of June 21.

(Xinhua News Agency August 26, 2008)