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Lack of flood insurance in China demonstrates need for microinsurance


Guy Carpenter have published a report looking at the devastating floods which have affected China this year. It was one of the worst flooding seasons since 1998 for China yet despite huge economic losses, insured losses will be low due to the extremely low penetration of insurance in China.

An unusually severe monsoon season resulted in record-high water levels in 25 rivers during the summer. These high water levels resulted in economic losses of around 350 billion yuan ($52 billion).

You’d be forgiven for thinking that at least some re/insurers would be paying out a significant amount due to that size of loss. But no, insured losses will be around 1% to 2% of the economic loss figure, say Guy Carpenter, as the insurance penetration level is so low.

This really shows the huge potential for insurance in China and the need for effective disaster risk management. Flooding of that magnitude affects millions of people and that is a huge potential market for insurers to tap using microinsurance products. Microinsurance products may be the best way to increase insurance penetration in China, particularly in rural areas. It is also the most likely to help rural Chinese farmers quickly, particularly if weather-index insurance schemes were used.

China, with its massive population and quickly modernising cities is destined to be the biggest insurance market in the world (one day) and we fully expect microinsurance to play a key part in increasing the size of that market in the coming years.

You can request a full copy of the report from Guy Carpenter here.

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