China In-Depth: Natural catastrophes – From recovery to prevention

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The vast majority of China’s population lies to the southeast of a line running from Beijing to Sichuan. The fact that this area routinely suffers from natural disasters has repeatedly reminded the government that economic development is about more than GDP growth. In 2017, a range of floods, typhoons, droughts and earthquakes toppled 153,000 houses in China, killing 881 people and causing the relocation of 5.25 million more. Against this, government agencies have historically been given cash pools to help locals recover post-disaster, but the message now is that a combination of private sector initiatives, in addition to new technologies will bring about a new era of natural catastrophe management in China, one that is based on three core tenets:

1. The introduction of legislation that will make government held natural catastrophe data available for modeling by private reinsurers engaged in public/private partnerships.
2. Spurring private investment in natural catastrophe management through tax incentives and government contracts. Stimulating startup activity like this holds huge promise for rural China as technological breakthroughs have proven crucial in addressing China’s other national challenges such as healthcare and transportation.
3. Finally, embracing new technologies such as drones, next generation satellites and social networks to allow regional governments to not only identify at risk regions, but also co-ordinate the distribution of provisions in the aftermath of disaster.

Considering these efforts, there is a clear recognition that it’s not enough to rebuild livelihoods and respond to natural catastrophes when they happen, but instead to invest in ongoing disaster readiness and mitigation measures. To this end, there are several notable initiatives currently underway in China including:

Mobile enabled typhoon alerts

The marriage of mobile devices and parametric insurance products is enabling prevention-based coverage against typhoons across eight coastal provinces in China. A recent initiative by Ping An and Swiss Re is offering typhoon coverage through WeChat with several notable features including:

• Real-time tracking of typhoon paths and wind speeds.
• Automated claims based on data from the national meteorological center of China, enabling payout within three days of typhoons making landfall.
• Satellite data and information from China’s Meteorlogical Authority to enable WeatherTech to efficiently price, administer and settle losses arising from wind and excessive rain.

A similar effort in this space is Beijing based WeatherTech that specializes in developing natcat solutions for rural China. WeatherTech has differentiated itself by aggregating data from natcat simulations, satellites and remote sensors to offer location based coverage for those residing in typhoon prone areas.

To access Weathertech, users first scan a QR code which detects location and directs users to a region specific landing page. Users then select the length of coverage and coverage limit to generate a quote. Although this may seem like the standard epolicy issuance, WeatherTech calculates a user specific premium in real time based on decades of natural catastrophe data. In the event of a claim, funds are automatically credited to the users WeChatpay or Alipay account.

Ultimately, this WeChat effort is a considerable upgrade from the traditional natural catastrophe coverage that focuses on government subsidized re-imbursement at the village level as opposed to on an individual basis. WeatherTech’s CEO, Li Chang, has summarized his company’s approach to natcat innovation: “We are working on smart insurance solutions that will take real-time weather and event data into account to offer risk commensurate coverage.”

Although WeChat is a core part of Weathertech’s distribution strategy, it’s also being used to forewarn the Chinese public of impending dangers and co-ordinating post disaster search/rescue and relief efforts. A recent earthquake in Sichuan province disrupted the legacy telco networks so volunteers and government agencies turned to WeChat to co-ordinate the distribution supplies and identify water shortages. For its part, Tencent has launched several natcat recovery charity groups within WeChat, one of which recently saw donations from 100 million users totaling $250 million USD.

Ultimately, although China has already developed sophisticated warning systems for extreme weather events, these systems are now being ported to social networks including WeChat, Weibo and QQ to enable adavanced notice and evacuation of millions of at risk residents.

2. Drone use

The ability to assess damage caused by natural disasters is currently being done through the use of satellite imagery that can prioritize field visits and simplify claims processing in the aftermath of a disaster. However the addition of low altitude drones has begun to augment the use of satellite data by validating claims in addition to enabling search and rescue functions when natural catastrophes strike. Again, the government is playing a heavy role and several drone development centers have been established including the China Agricultural Information Technology Research Center and the China Reinsurance Catastrophe Research Centre, both of which are developing advanced features for next generation drones.

These research initiatives have already seen several insurers including China United Insurance and PICC testing drones to assist natcat modeling, damage appraisal and claims settlement.

Drones are also being uitilized to deliver a ‘3S’ service that includes remote sensing (RS), geographic information systems (GIS), and global positioning data (GPS) all of which help farmers to map crop yields, analyse soil quality, and even enable remote plough guidance. Far from a pilot project, this launch is China United’s second batch of drones and recently covered over 200,000 acres of drought-stricken farmland in Sichuan province to aid disaster response and damage assessment.

Ultimately, low altitude drones will upend the way property insurers and rural government approaching natural catastrophes. Although rural communities are benefiting from the proliferation of drones, it’s important to remember that drone functionality is still in its nacency, and drones will soon be able to co-ordinate search and rescue efforts, deliver supplies faster and more broadly, and carry out remote reconnaissance of regions in the grip of a natural disaster.

Although low cost drones are enabling prevention based natural catastrophe cover, technological innovations aren’t the only efforts being pursued, breakthroughs are also under way in product development.

3. Product innovations

Multiple-peril crop insurance products, those covering droughts, floods, frost and earthquakes, have been over emphasized in China. Farmers often enroll as a group at village level and payouts are determined on a per village basis which means farmers’ yields aren’t guaranteed. Recently, named-peril and index-based crop products that compensate farmers more accurately and fairly are beginning to flourish. From blizzard and drought index insurance for goat farmers in Inner Mongolia, to high temperate insurance for crab farmers in Jiangsu and wind index insurance for rubber tree merchants in Hainan, new pricing models are being introduced by private insurers who are sensing a new era of agricultural and natural catastrophe insurance.

Among the insurers currently readying themselves for this new age is Ping An who have been steadily building their natcat capabilities through a ‘Digital Risk System’ to model the risk of disaster, warning, and loss reduction based on 60 years of natural catastrophe data.

Through initiatives such as this, the ability to forewarn policy holders in addition to pricing natcat coverage based on location, size and construction quality of dwellings is creating an economic incentive for homeowners and SMEs to seek out property and agricultural insurance. In turn, other players such as An Xin Agricultural, Zhong An and An Hua Agricultural are also equipping themselves with historical natcat data, local risk profiles and online distribution channels to accelerate the transition from subsidizing farm output and towards supporting incomes.

Conclusion

The above efforts, although still in their nascency, show a new era of natural catastrophe readiness based on prevention and response as opposed to financial compensation is already mitigating the consequences wrought by natural catastrophes globally. Although the current efforts to detect and prevent natural catastrophes in China, hastened by climatic trends, show that change within China’s NatCat response is necessary, the fact that China suffers disproportionately from natural disasters only bolsters the case to embrace the early warning and co-ordination efficiencies promised by these new technologies.