Flood insurance in China: what are the risks and which policies provide coverage?
From 2010 to 2019, floods in China caused 2.3436 trillion RMB in economic losses, killing almost 900 people a year on average and affecting millions. The insurance penetration rate in China being relatively low, people often rely on charity and government relief funds to compensate for their properties destroyed by rising waters.
With a tropical climate in its South-Eastern provinces and thousands of kilometers of coastline on the typhoon-prone Pacific Ocean, some regions in China have always shown high risk for flooding. As climate change is causing more frequent extreme weather events such as the 2021 Henan floods, one would be well advised to look into flood insurance in China. And yet, dedicated natural disaster insurance products are quite rare in China. Fortunately, generic insurance policies cover damages caused by flooding, albeit sometimes at a premium. In our insurance market report, we present the risks of floods in China, the damages they cause, and which kind of insurance contracts cover such damages.
Which provinces are the most affected by floods in China?
Eastern China is subject to a tropical climate with a Monsoon season lasting from June to August also called 梅雨 (plum rain). During these months, Eastern China is prone to heavy and sudden rainfall with about half of annual precipitation happening over three months on average. This sometimes causes low lying areas to flood and rivers and lakes to overflow in the most impacted provinces. Typhoons also tend form on the Pacific during summer, not far from Chinese shores. They bring with them heavy rain and wind that can cause flooding when they hit the mainland. Western Chinese provinces such as Tibet, Xinjiang, Gansu and Shanxi have a dry climate and are relatively far from the sea. This protects them from floods but makes them more prone to droughts. The five provinces the most affected by floods in China in the last 10 years are Heilongjiang, Hunan, Hubei, Shandong, and Jiangxi.
Recent extreme weather events highlight the need for flood insurance in China.
As climate warming worsens, extreme weather events are becoming more frequent around the globe. In China, monsoon season in 2020 and 2021 have brought severe flash floods causing hundreds of deaths and billions in damages. During the 2021 Henan floods, 617.1 mm of rain fell in Zhengzhou over just three days, causing widespread damage. 302 people died and 50 more went missing. Direct economic losses in Henan reached 114.27 billion yuan, with over 580,000 hectares of farmland affected. 45 companies contributed a total of 4 billion RMB to a relief fund.
While less deadly that the Henan floods, the monsoon 2020 monsoon season in China also brought heavy rains that caused massive flooding in the Yangtze basin area. The flooding affected 63.46 million people across 26 provinces, causing 219 deaths and 178.96 billion RMB in economic losses. Over 4 million people had to be relocated in temporary housing.
Standard insurance policies provide coverage for flood insurance in China
Dedicated insurance contracts covering natural disasters exclusively are usually restricted to some niche agricultural and property insurance policies in China. Fortunately, most regular insurance products do cover damages caused by natural disasters, albeit sometimes at a premium. For example, state-mandated compulsory car insurance offers limited coverage and does not include waterlogging damages. However, “All risk” commercial insurance packages can be contracted to take care of all types of damages, including damages caused by flooding. For health insurance, injuries and deaths that could occur during a flood are covered by standard contracts just like any other kind of injuries. Similarly, standard property insurance policies for corporate and residential buildings offer a wide coverage for all kinds of damages. Most “all included” insurance package will cover damages caused by natural disasters to homes, indoor property, and plumbing, although be mindful of exclusion clauses that could prevent you from being compensated.
Who are the main players of the Chinese insurance industry?
The Chinese insurance industry as a whole is dominated by a small oligopoly of large insurance companies that take advantage of their better funding capacity and wider agent networks to offer more services to their policyholders. The P&C insurance market in China is cornered by three main players, sharing about 50% of the market in premium revenues:
- The People’s Insurance Company of China (PICC): Largest insurance company in China, the group employs a vast network of agents and underwriters serving a 200 million-strong customer base.
- Ping An: Second largest insurance company in China, the group employs new technologies to promote online customer development. In 2019, the Ping An Auto Owner app topped the list of auto service apps in China.
- China Pacific Insurance Company (CPIC): Third largest property insurer in China, CPIC offers a wide range of insurance and reinsurance products. China Pacific employs over 300,000 agents in its business network and provide services to more than 80 million customers in China.
These groups have also expended into finance and wealth management services as well as health insurance, although some insurers dedicated to health insurance like Kunlun and Ruiha were able to secure significant market shares as well.
Takeaways about flood insurance in China
- Eastern China is prone to floods due to its wet climate and its proximity to the Pacific Ocean. The time of the year that sees the most floods happen is during monsoon season in summer from June to September.
- With the threat of global warming looming, extreme weather events have been more frequent around the globe including in China. Events such as the 2021 Henan floods are expected to be more frequent in the coming years.
- There are very few dedicated policies for flood insurance in China. Instead, standard insurance contracts provide coverage for damages caused by natural disasters, including flooding.
- The insurance market in China is dominated by a handful of large insurance groups offering a wide range of services and insurance products in all fields of insurance. Although these large companies’ size gives them a competitive edge, smaller domestic insurers as well as foreign insurers have been able to develop their activity in China, focusing on more localized audiences and on specific services.
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