Natural disasters are frequent, but there is still a gap in the "shock absorption" of catastrophe insurance, and the risk threshold is moved forward to explore risk reduction

(Image source: Visual China)

Blue Whale News, July 23 (Reporter Shi Yu) Recently, the country has officially entered the most critical period of flood control, and heavy rainfall in Shandong, Henan, Suzhou, Anhui and other places continues; The geological conditions in Shaanxi and Gansu are fragile, and the risk of flash floods and geological disasters is prominent. The rainfall in the Sichuan Basin overlaps with the previous period, and secondary disasters are prone to occur frequently. At the same time, since June, serious meteorological disasters such as heavy rain, hail, floods, and high temperatures have occurred in many places in Xinjiang.

At a time when natural disasters are frequent, catastrophe insurance is attracting attention. On the one hand, in the face of disasters, catastrophe insurance plays an important role, providing post-disaster protection and bearing the value of relief funds. On the other hand, there is still a large gap in the supply of protection, and it is urgent to further develop and improve the catastrophe insurance system.

It is worth mentioning that risk reduction has become one of the important breakthrough directions for all parties around catastrophe risk protection. The insurance industry is also increasing investment and seeking to actively exert efforts through technological means and catastrophe models to enable the risk threshold to move forward.

The catastrophe insurance system continues to explore: the government and business have made efforts to pilot the project in many places

With the frequent occurrence of natural disasters, insurance is playing a positive role.

According to the data disclosed by the State Administration of Financial Supervision a few days ago, as of 12 o'clock on July 11, insurance institutions in Hunan, Zhejiang, Anhui, Fujian, Jiangxi, Guangdong, Guangxi, Guizhou and other places have received a total of 95,000 reports, with an estimated loss (loss report) amount of 3.21 billion yuan, and the amount of compensation and pre-compensation has exceeded 1.1 billion yuan.

As of July 15, insurance institutions under the jurisdiction of the Chongqing Financial Supervision Bureau have received 3,954 relevant claims reports, with an estimated loss of 98.46 million yuan; 1,405 claims have been paid, with a claim amount of 11.96 million yuan. Among them, 145 catastrophe insurance claims were completed, 113 agricultural insurance claims were completed, and 16 house collapse claims were completed.

The risk of catastrophes in mainland China is "complex, frequent and concentrated", with more than 70% of cities and more than 50% of the population distributed in areas with severe natural disasters. For example, the southeast coastal areas are often hit by typhoons, and the northeast, northwest, north China, southwest and other places face flood threats to varying degrees.

The key to tackling the problem is to establish a multi-level catastrophe protection system and improve the multi-risk diversification mechanism. Among them, catastrophe insurance is pinned on high hopes. It is understood that catastrophe insurance in mainland China is mainly divided into policy-based catastrophe insurance and commercial insurance covering catastrophe liability.

In terms of policy-based catastrophe insurance, the establishment of the China Urban and Rural Residential Earthquake Catastrophe Insurance Community in 2015 promoted the mainland earthquake catastrophe insurance system to be piloted nationwide, and there are differences in insurance premium design based on regional economy, urban-rural distribution, and building structure. By the end of 2023, the co-insurance body has provided protection for more than 21 million households (times) across the country.

At the beginning of 2022, the regulator carried out the demonstration of expanding the scope of catastrophe insurance and the calculation of multi-causal rates. In March this year, the State Administration of Financial Supervision and Administration issued the Notice on Expanding the Coverage of Catastrophe Insurance for Urban and Rural Residents and Further Improving the Catastrophe Insurance System, which strengthened the protection liability, increased the basic insurance amount, and supported the development of commercial catastrophe insurance.

As of 2023, a total of 19 provinces and municipalities have established a local catastrophe insurance system, and according to industry exchange data, the estimated premium scale has reached 1 billion yuan, with an average annual growth rate of more than 40% from 2014 to 2023.

In recent years, Tibet, Zhejiang, Hubei, Guizhou, Shandong and other places have successively promoted catastrophe insurance pilots, with different scopes and contents, such as Guangxi since 2022, in Guilin, Yulin, Wuzhou, Qinzhou, Beihai, Fangchenggang and other six regions to carry out index catastrophe insurance pilots, in June this year, Anhui Province issued a pilot implementation plan for comprehensive natural disaster insurance, comprehensively promoting people's livelihood insurance and government catastrophe insurance, catastrophe insurance selected 10 cities for pilot, It covers three types of products: agricultural infrastructure, property damage in the park and urban lifeline security.

From the perspective of commercial catastrophe insurance, at present, property insurance and engineering insurance mainly cover catastrophe liability. According to Zhou Junhua, general manager of the innovative business department of China Re Property & Casualty Insurance, from the perspective of annual industry statistics, in the field of property insurance and engineering insurance, catastrophe compensation accounts for more than 10% of the loss, and the average annual loss is about 5.2 billion.

The catastrophe insurance system is still in the exploratory and pilot stage

Although catastrophe insurance has assumed important responsibilities after natural disasters, there is still a large gap when compared with the actual amount of losses and the proportion of compensation borne by foreign catastrophe insurance. Li Yunze, director of the State Administration of Financial Regulation, said in his keynote speech at the 2024 Lujiazui Forum that from the global average, about 40% of the losses caused by major disasters are borne by the insurance industry, while the proportion in the mainland is only about 10%.

While accumulating experience based on the construction of the catastrophe insurance system and the pilot situation in various places, it also finds multiple difficulties in the development of catastrophe insurance. For example, in terms of product design, the "low frequency and high loss" characteristics of catastrophes make it possible to lack effective long-term observation data to support the design of insurance schemes, and the quantitative analysis results are highly uncertain. In terms of product innovation, there are currently few catastrophe insurance products, the cause of the disaster is relatively simple, and there is a lack of comprehensive insurance protection.

"At present, the mainland catastrophe insurance system is still in the exploration and pilot stage, and the popularity and coverage are low as a whole, and at the same time, the small volume of commercial catastrophe insurance purchased by enterprises and individuals is related to the level of economic development and the lack of awareness and attention to catastrophe insurance," Cao Zhihong, executive director of China Captive Insurance Network, analyzed to the Blue Whale News reporter.

How to promote the development of catastrophe insurance? In recent years, the industry has made suggestions on promoting catastrophe insurance legislation, the government promoting the sharing and integration of disaster-related data, and enriching the catastrophe insurance product system.

From the perspective of development model, "for catastrophe risk, the initial domestic government assistance is the mainstay, the formation of disaster prevention and loss prevention system, is gradually exploring to increase the proportion of commercial insurance in disaster prevention and loss prevention expenditure, but has not yet formed a perfect model", Cao Zhihong put forward his personal suggestions, "the future mature model, should be under the support or organization of the government, from the demand side of the individual, enterprises to guide or even compulsory insurance, from the supply side of the organization of insurance companies to form a co-insurance model to promote." ”

Among them, insurance companies, as the main participants in catastrophe insurance, are also seeking breakthroughs. For example, for further doing a good job in catastrophe insurance, China Life Property Insurance proposed that in terms of community work, while continuing to promote products and improve protection coverage, it will focus on promoting and solving a series of problems that restrict the settlement efficiency of direct insurance; In terms of improving the operating capacity and service level of catastrophe insurance, it is proposed to enrich the product supply according to market demand and regional risk characteristics; Efforts will be made to improve the ability to identify, measure and evaluate catastrophe risks, and accurately price.

China Re's catastrophe risk management company develops earthquake models, typhoon models and flood models in China. In terms of catastrophe insurance scheme design, catastrophe models achieve scientific pricing by objectively standardizing and quantifying risks. By calculating the average annual expected loss and the loss of different return periods, the insurance protection level can be set more scientifically; Through testing, parameters such as deductibles and limits can be optimized, and insurance implementation plans and apportionment mechanisms can be designed more scientifically.

"The catastrophe field is facing many new challenges," Zhou Junhua said, adding that risks and losses caused by risk accumulation, secondary disasters, and climate change need to be faced. "The potential losses in the future will be greater, and the social problems caused by catastrophes will become more and more serious. There is a need for greater underwriting capacity, and for greater investment for the entire insurance industry to play a greater role in catastrophe risk management. ”

Pay attention to pre-disaster disaster prevention and loss prevention, and make efforts to reduce risks

In April this year, the State Administration of Financial Supervision issued the "Guiding Opinions on Promoting the High-quality Development of Green Insurance", which proposed to promote the development of catastrophe insurance, expand the coverage of catastrophe insurance, use reinsurance to effectively diversify risks, study and explore new risk transfer methods such as catastrophe bonds to broaden risk diversification channels, promote the formation of a multi-level and multi-dimensional catastrophe risk diversification system, and improve the industry's catastrophe risk bearing capacity.

"Catastrophe insurance is an effective mechanism for disaster management, but the catastrophe insurance system cannot be equated with catastrophe insurance," Zheng Gongcheng, deputy director of the Expert Committee of the National Disaster Reduction Commission and president of the China Social Security Association, pointed out. It is necessary to establish new thinking, take the resolution of catastrophe risks as the ultimate goal and highest goal of the catastrophe insurance system, adhere to the basic policy of adapting measures to local conditions, disaster conditions, and time conditions, and adopt various methods such as independent insurance, additional insurance, integration of catastrophe risks into relevant insurance types, and the combination of insurance and non-insurance methods under the conditions of sub-regional and sub-disaster situations, so as to accurately administer treatment. ”

One of the effective means is to reduce the risk of catastrophe risk and shift the focus of catastrophe risk protection from post-disaster compensation to pre-disaster prevention. This includes, for example, risk assessment and monitoring of high-risk areas; Provide disaster prevention and mitigation advice and technical support to potential risk stakeholders and enterprises; Promote the intelligent detection system by scientific and technological means, improve the accuracy of risk reduction services, and so on.

For example, Ping An Property & Casualty Shaanxi Branch has built a risk reduction management platform, using infrared monitoring, Internet of Things, satellite remote sensing and other technologies to provide customers with various disaster warnings and help customers deal with risks and prevent disasters.

China Life Property & Casualty Insurance proposed that it plans to carry out a series of capacity improvement projects covering 19 key industries of enterprise property insurance and engineering insurance in the three years from 2023 to 2025.

China then integrates the catastrophe model into the natural disaster risk management system. Fang Jing, deputy general manager of China Re Catastrophe Risk Management Co., Ltd., said, "The catastrophe insurance management platform established by the local government takes the catastrophe model as the core, connects to the government emergency management platform, and extracts the corresponding data from the government emergency management platform for analysis. For example, based on real-time weather forecasts and other data, through catastrophe model analysis, urban waterlogging disaster prediction can be more accurately realized, and high-risk points can be fed back to the government emergency management platform in a timely manner to assist in the formulation of emergency management plans. ”

From the perspective of foreign experience, based on the development of commercial catastrophe insurance, insurance companies have a strong incentive to promote risk reduction", Cao Zhihong believes that "the overall scale of domestic catastrophe insurance is still relatively small, and when the premium volume increases, insurance companies will be more motivated to form a large-scale promotion and implementation." At present, it is more necessary for the government and public welfare departments to coordinate and organize. “

According to the statistics of the Insurance Association, in 2023, the insurance industry will pay about 25.259 billion yuan in compensation for major natural disasters, send about 130 million early warning messages, check the risks of corporate customers about 171,400 times, and reduce disaster losses by about 3.709 billion yuan.

"What is more valuable than post-disaster compensation is the effective avoidance and reduction of personal and property losses caused by disasters," said an insurance industry insider. (Blue Whale News, Shi Yu, [email protected])