China intends establish a disaster risk insurance system with state financial support, in a move to encourage domestic insurers to play a bigger role in providing insurance for potential disasters, ac

China frequently suffers from the ravages of earthquakes, floods and typhoons. The official death toll from the Tangshan earthquake in July 1976 was 255,000. Unofficial estimates put it at over 600,000. Swiss Re estimates that a major catastrophe in China today, triggered by typhoon, flood or earthquake, could generate total economic losses exceeding RMB1 trillion ($126 billion), or about 6% of China's GDP (2005). China's impressive economic growth and an explosion in property values in some of the most highly exposed areas, especially on the urbanised coast, are exacerbating the situation.

Rebuilding after disasters is currently mostly financed by the state and donations. For example, the big floods in 1998 caused $29.9 billion of direct economic losses, while insurance payments reached only $357 million, according to government figures.

For the moment, typhoons and floods are included in the property and casualty policies for individuals and businesses, but earthquakes are excluded and normally written as an additional insurance when businesses require it. "We will not voluntarily offer earthquake insurance to our customers given the high potential risks," said Zhang Chunhua, general manager of the property insurance department of PICC Property and Casualty Company (Beijing Branch).

The China Insurance Regulatory Committee (CIRC) is urging the government to include public resources in an earthquake insurance system with government responsible for policy and appropriate regulations. The CIRC argues that commercial insurers alone cannot bear the cost of natural catastrophe risks, so the government needs to provide financial support.

Meanwhile, catastrophe modeller Risk Management Solutions (RMS) has warned that it is only a matter of time before another shallow earthquake devastates a densely populated city in Asia, as did the Tangshan earthquake.

According to RMS, the destruction in Tangshan in 1976 was the result of an ill fated combination of fault location and high population density in the vicinity of the epicenter. The fault rupture occurred in an area of assumed low seismic risk, where the buildings were not designed to withstand ground shaking.

Comments RMS, "Alarmingly, as cities across Asia have rapidly increased in population over the last 30 years, a much greater proportion of the overall population now lives in cities like Tangshan. It is only a matter of time before a major shallow earthquake strikes one of these cities, potentially leading to devastating effects like those seen in 1976."

To mark the 30th anniversary of the Tangsham earthquake, RMS has published a report in collaboration with the China Earthquake Administration's scientific and engineering arm, the Institute of Engineering Mechanics. It is available from: