This article is based off a report on typhoon insurance in China done in collaboration with daxue consulting.

Each year, an average of eight typhoons and tropical storms make landfall in China, causing tremendous damages to infrastructures and agriculture and thousands of deaths and injuries. However, typhoon insurance in China remains relatively underdeveloped. Dedicated natural disaster insurance in China has indeed only recently started to be implemented, catastrophe relief being usually undertaken by government subsidies and donations. Companies and farmers in China have instead relied on other types of insurance policies to insure against natural catastrophes such as agricultural and corporate property insurance. In this article, we will give you a summary of the content of our industry report on typhoon insurance in China with an overview of the impact of typhoons on Chinese industry and the state of natural disaster insurance in China.

Typhoons cause severe damages each year in China

Typhoons are tropical storms that form on the Pacific Ocean and then move inland across East-Asia. In China, Typhoon season is around late June and early July, hitting the coastal provinces of south-east China the most. The most violent typhoons, of which the winds can go up to 51 miles per second, then move inland causing more devastation. Over the last 20 years, meteorological disasters have caused about over 200 billion US$ in damages in China, of which only a tiny fraction were insured. Total damage caused by typhoons and tropical storms in coastal provinces in China amounted to over 800 million RMB in 2020, which is a comparatively “calm” year. In addition to the damages caused to infrastructures, telecommunications, marine traffic and habitats, the most impacted industries by typhoons in China every year are tourism and agriculture.

Natural disaster insurance in China is still at a developing stage

Typhoon insurance in China, alongside other types of dedicated natural disaster insurance, are not yet completely fleshed out compared to what other developed countries have to offer in term of insurance products. There were some discussion among the CCP to develop a national insurance system for natural disasters in the early 2000’s, but efforts really kicked in after the 2008 Wenchuan earthquake disaster. In more recent years, provincial governments have applied pilot programs locally for natural disaster insurance and notably weather-indexed insurance for crops in typhoon-prone agricultural areas such as the Yunnan province. Despite this development, natural disaster insurance in China retains a low penetration rate for several factors:

• China’s system of compensation for catastrophic loss has historically relied heavily on government relief and public donations.
• Low risk and relatively low payouts make these insurance policies a hard sale for underwriters.
• Other types of insurance like agriculture insurance and property insurance already have clauses covering loss caused by natural disasters.

Agriculture insurance in China has rapidly become mainstream

Agriculture insurance in China only has started to develop in the past two decades. In that time span, agriculture insurance in China has evolved from barely existing to covering 80% of crops, 100% of forests and 40% of livestock in China. The sum insured in all agricultural fields went from 36 billion US$ in 2008 to 519 billion US$ in 2018. This development was thanks to a comprehensive insurance product system varying from one province to another and a considerably increased farmer awareness of these products. Another key to this success is that agriculture insurance in China is very heavily subsidized by various states organs whether they be central, provincial, or local. In 2018, premium subsidies for agriculture insurance in China were composed at 75% of government subsidies. As the market has developed, insurance liability and coverage, initially low, have increased extensively and new insurance products have started to appear. Weather-indexed insurance policies are among the most innovative additions and constitute good alternatives for typhoon-prone regions.

The tourism industry relies on corporate property and employer liability insurance

The hospitality industry in China is among the most affected by typhoons after the agricultural sector. Outside of the damages caused to properties, hotels and tourist spots have to suffer from cancellations and an overall decrease in activity following a catastrophe. A case study on the impact of meteorological disasters on tourism in Taiwan found that the output reduction of a scenic area damaged by a typhoon was three times higher than the economic loss caused by property damage. In term of insurance, companies mainly rely on corporate property and liability insurance to cover their assets. However, corporate property insurance in China has stagnated for a long time as an industry for the same reason there is a low market penetration for dedicated typhoon insurance in China: low risk and low payouts combined with an extensive government disaster relief system make this kind of insurance products unattractive to businesses. As a result, corporate property insurance has been among the slowest growing non-life insurance sectors in China.

Key takeaways about typhoon insurance in China

• Typhoons are causing considerable damages every year in China, impacting infrastructure and agriculture the most.
• Typhoon insurance in China alongside with other dedicated natural disaster insurance policies are still developing in a market that relies heavily on subsidies and other form of insurance to cover natural disaster caused losses.
• The Chinese agriculture insurance industry in particular has increasingly provided in recent years farmers with extended coverage for their crops, forests and livestock.
• Other sectors such as the hospitality industry, which is among the most impacted by typhoons, are relying on corporate property and liability insurance.
• Although these alternatives as well as dedicated natural insurance products face low market penetration in part due to relatively low indemnities and low risk.

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