China’s insurance penetration is still comparatively low, particularly outside the agricultural sector. This is despite almost two decades of rapid economic growth, usually associated with significant growth in the insurance market (Ranger and Williamson, 2011). Earthquake insurance penetration is only 3 percent across China (Wang et al., 2009) and with typhoons and floods rises to only 5 percent (Swiss Re., 2008). Consequently, insured losses are usually low even following major disasters. After the Huaije and Yangtze River flooding in 2007, insurance claims only amounted to 6 percent of total estimated loss. And during the Wenchuan Earthquake in 2008, payouts made by the insurance industry only equalled about 1 percent of total losses (Lloyds, 2012).

Insurance regulation can trigger growth in insurance markets, but there are also other types of public policies and regulatory mechanisms that can result in increasing demand and facilitate the effective capital markets required for insurance to operate (Ranger and Surminski, 2011). In China, although public policy is seen as a means to promote insurance in the agricultural sector, no similar approach exists to support development of insurance for the property sector. However, this may change in the coming years owing to continued and growing urbanisation—today, more than 44 percent of the country’s population lies in urban areas (Kamal-Chaoui et al., 2009). In 2010, industrial and service sectors accounted for 89 percent of total GDPⁱⁱⁱ , which means that public policies on insurance and reinsurance as part of overall risk governance arrangements can be expected to change.