China's insurance regulator said it will build an insurance system in two to three years to protect against natural catastrophes, which cause some US$17 million in losses each day.

In particular, the China Insurance Regulatory Commission and other stakeholders are completing an insurance scheme to cover earthquake damages to residential properties, said Liu Jingsheng, an official with the commission.

"China has yet to forge a sophisticated and complete catastrophe insurance system," said Liu. "The commission has enacted and revised some regulations and is actively coordinating with other agencies to secure maximum fiscal and taxation support for the formation of such system."

"The commission is striving to set up a catastrophe insurance framework in two or three years," he said.

He was speaking at a three-day International Conference on Continental Earthquakes in Beijing, where more than 240 experts from 42 countries and regions are discussing emergency management and insurance.

The meeting is scheduled to end today.

Liu also said: "The China Insurance Regulatory Commission encourages domestic insurers to expand collaboration with foreign counterparts."

Already, the commission has invited insurance companies from Japan, the United States, Australia and Europe to share their experience and expertise on catastrophe insurance.

It is also encouraging foreign investors to participate in the formation of a catastrophe insurance system in China by introducing reinsurance brokers, earthquake model management companies and agricultural insurers, Liu said.

Widely regarded as one of the most disaster-prone countries in the world, China has suffered from the ravages of nature, including earthquakes, floods and typhoons.

Economic losses have reached 28.52 billion yuan (US$3.44 billion) so far this year, the Ministry of Civil Affairs said yesterday in a statement. That translates into average daily losses of at least 147 million yuan (US$17.7 million).

Currently, rebuilding after disasters is mostly financed by the State and donations. But insurance has proven an effective approach to deal with the aftermath of calamities. Demands for catastrophe insurance are enormous in China, Liu said.

Commercial insurance companies cannot afford to run catastrophe insurance, given the risks and extent of losses such policies cover, he added.

"For that reason, official policy support is crucial for the development of catastrophe insurance," he said.

Liu used earthquake insurance as an example.

Largely due to lack of policy support, China's commercial insurers employ a prudent underwriting strategy, with some declining to offer property insurance or do it conditionally, said Liu.

"But people need such insurance, especially in quake-prone rural areas," said Du Wei, a China Seismological Bureau director.

While government disaster relief usually covers only infrastructure and some damage to houses, residents are increasingly calling for their property to be protected as well, Du said.

With the backing of favorable official policies, the China Insurance Regulatory Commission, together with Du's bureau and the Ministry of Finance, are putting the final touches on a property insurance scheme for earthquakes.

It features low premium rates and wide coverage, Liu said.

Li Hong, a staff member from the China Seismological Bureau, said insurance against earthquakes should, in the long run, cover enterprises, instead of only individuals.

Without specifying, Liu said a catastrophe insurance system in the pipeline will allow regulators to identify and approve insurers' catastrophe reserve funds through fiscal policies. Tax incentives for insurance companies that will allow them to pool such funds are also being developed.

"Such an arrangement will raise insurers' awareness of catastrophes, and help form a risk control system to ensure timely compensation in case of catastrophes," Liu said.

(China Daily July 14, 2004)