China’s province of Henan has been hit by what is being termed a 1-in-1000 year flood event, after a year’s worth of rainfall fell in just three days. But the insurance and reinsurance market claims impact may be most severe on the auto side, rather than property claims, while supply-chain disruption could also be a factor.
As of yesterday, Chinese property and casualty insurers had given tentative estimates for upwards of 60,000 insurance claims received, but the bulk of these are expected to be in auto or motor lines of business, given property insurance flood coverage remains less prevalent as a product in the region.
Analysts at Goldman Sachs said that, depending on the average claim size, it could foresee anywhere up to Rmb 11 billion of auto insurance claims (roughly US $1.7bn) after the flooding seen in Henan, with the largest concentration of claims likely to come from the badly affected city of Zhengzhou.
Media agency Yicai reported that major P&C carriers such as PICC Property & Casualty and Ping An have been inundated with claims, but that auto makes up the majority.
The period of extreme rainfall included the single most rainfall in a day ever recorded by one meteorological station.
Ping An said that over 90% of the claims it has received are auto related.
As a reminder, water damage has only been included in standard auto insurance policies in China since 2020, prior to which it was an optional add-on.
Reuters reported today over 32,000 auto claims received by a group of China’s largest insurers.
Commercial property insurance is the big unknown when it comes to a major flood disaster like this.
The impacts to commercial, industrial and manufacturing property in the affected region will have been significant, but it’s challenging to know how much limit is actually at risk.
Major global reinsurance firms will have some exposure, it is assumed, while domestic Chinese reinsurance firms, like China Re, would be anticipated to take a perhaps larger share.
Reuters reports that supply-chain disruption is a concern in some sectors, given the industries active in the region.
A lot of this is expected to only have a domestic impact, but some international supply-chains could be disrupted, with examples such as a Foxconn factory making iPhone accessories having been damaged, according to reports.
Many parts of Zhengzhou city were inundated with flood waters, including the cities subway system. While footage in the news showed rivers surging down city streets, with significant inundation for buildings adjacent to the waterways and more broadly as flood waters spread.
While rains are expected to subside, it’s worth noting that the Chinese meteorological agency has said that the extreme rainfall could be linked to the approaching typhoon In-Fa.
The airflow of the typhoon is thought to have hit an area of high pressure, with the combined effects of this causing a flow of moist tropical air into the affected region ahead of the typhoon and leading to significant rainfall.
Typhoon In-Fa is heading for landfall in China with the coastal region between Wenzhou and Taizhou suggested as the likely location either late this weekend or on Monday.
It’s expected typhoon In-Fa will bring torrential rains to Taiwan as it passes and then over China, as well as the chance of wind gusts to 80 mph or so.
After landfall, the remnants of typhoon In-Fa could potentially bring further rainfall to the Henan region, which has the potential to exacerbate flooding and raise river water levels higher again. Shanghai is also expected to feel the rainfall effects of this typhoon.
Typhoon In-Fa has also been bringing torrential rains to some of the southern Japanese islands as well. Significant storm totals of up to 20 inches of rainfall are forecast for parts of Taiwan, the Japanese islands and then for the Chinese coast as In-Fa approaches.
As ever, with a catastrophic event like this flooding in China, it is likely the economic loss will far outweigh any financial impacts to the insurance and reinsurance industry.
Which will further evidence the need for more risk capital and insurance penetration into China, as the country’s significant exposure to severe weather and natural disasters highlights the need for efficient transfer of those risks, including to the capital markets or ILS capital.
The flood impacts also show one of the motivations for opening up access to China’s catastrophe risks through Hong Kong’s ILS platform via issuance of catastrophe bonds.
The country and its re/insurers can benefit from transferring catastrophic risk to the capital markets, with Hong Kong set to provide an efficient conduit.