China: Catastrophe insurance scheme on the way, but huge risks may deter insurers from taking part

China’s social security reforms are are about to promote the development of a catastrophe insurance scheme, but experts warn that without sufficient risk transfer tools insurers will not hurry to enter the non-profitable business, reports South China Morning Post.

“Government financial support will be needed to attract or encourage insurance companies to participate in catastrophe insurance,” said Sally Yim, a senior credit officer at rating agency Moody’s Investors Service.”In China, the largest catastrophic losses have been caused by earthquakes, but existing levels of insurance coverage were extremely low, “ added Yim.

“It’s not easy to encourage insurance companies to write catastrophe insurance, as a single disaster such as an earthquake could cost a huge amount of claims that might cause liquidity problems for an insurer, so the risk is too high,” said Zhu Minglai, an insurance and risk management professor at Nankai University in Tianjin.