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Plan disaster insurance

(China Daily)
Updated: 2008-06-03 07:48

A disaster insurance system should be introduced to protect corporate and household assets, says an article in People's Daily. The following is an excerpt:

After the devastating earthquake in Sichuan province, the rescue and reconstruction work needs strong support from different sides. Insurance has also played an important role. Many primary and secondary school students who were injured or lost their lives in the quake bought life insurance designed especially for students before the quake. So they will be compensated by the insurance companies. The 24-hour hotline of the insurance companies and the fast track compensation procedure will help deliver the compensation to the families of the victims as soon as possible. Each compensation is not only a psychological comfort for the living ones, but also provides necessary physical guarantee for their future life.

However, the pity is that most of the insurance compensations belong to life insurance. Currently, earthquake is not viewed as a type of property insurance, so few household and corporate assets such as houses and vehicles destroyed by the quake can get compensated. The main reason is that our insurance industry is in the early stages of development and the commercial insurance companies usually are small-sized and weak. The compensation due to a quake usually goes beyond the capacity of insurance companies, and thus, they cannot shoulder such a huge insurance compensation. Even in some advanced countries, commercial insurers usually do not provide insurance for severe natural disasters, including earthquakes.

China is one of the countries that are frequently plagued by natural disasters. These natural disasters have a wide range and have caused great financial losses. The social assets urgently need to be protected by insurance. Especially in recent years, the living conditions of the people are getting better and the household income keeps rising; more and more people own houses and cars. People usually spend their lifelong savings to buy large assets like houses. Once these large assets are destroyed by a quake, many households are unable to repossess these assets and may face difficulties in the future life. If people can have the insurance protection against a quake, their assets can be compensated on time. It actually reduces the burdens of the government.

How to solve the contradiction between insurance demand and insurance capacity? The mature practice in some foreign countries is to build up a massive disaster insurance system, guided by the government and operated according to the rules of the market. It means enterprises and individuals should buy massive disaster insurance; it is subsidized by the government and jointly compensated by several insurers. Furthermore, the system reduces the risks of insurance companies by using the overseas reinsurance market. The insurance compensation can account for 30 to 40 percent of the total disaster losses, greatly reducing the pressures on the government in the relief work.

The building of this system needs the efforts of the insurance companies, and the policy support of the central government. For example, for those insurance companies that agree to join in this system, the government should give them preferential tax treatment to help them reduce their operation costs and raise their compensation capacity.

(China Daily 06/03/2008 page8)