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Insurtech of the month

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This month we look at the lengths being taken to forewarn rural Chinese communities of a rare but devastating occurrence; earthquakes. In 2008, a staggering 87,000 people were killed during an earthquake in Sichuan province while a mild tremor in the same province last summer left 19 dead. Considering this, and the lack of private sector involvement in natural catastrophe prevention, the government has begun construction of an earthquake detection network along the so-called ‘North-South Seismic Belt’ that encircles most of Sichuan, Gansu and Yunnan provinces.The network currently consists of about 15,000 observation stations that can sense ground tremors and alert people within seconds by SMS, social network and public broadcasts following earthquakes measuring 5 or above on the Richter scale.

A total of $290 million has already been committed with stations placed 50km apart and intended to cover the mainland by 2020. Additionally, the system will also help to implement contingency plans and assess damage while new algorithms developed against historical earthquake measurements can analyse ground motion measurements in real time to determine whether or not seismic activity is an aftershock or just ‘noise’. It’s generally difficult to detect minor earthquakes due to harmless seismic noise activity, but the ability to make this distinction can save lives across China and globally.

Notwithstanding this, a recent report warned of a significant risk of mass casualties in the event of an earthquake strike near critical infrastructure such as dams, nuclear plants and petrochemical stations. The fact that only 6% of houses in rural China meet anti-seismic design requirements has further prompted local governments to either retrofit or rebuild houses for 18 million farmers, starting with Sichuan province. The combination of this detection/response system with the establishment of index based earthquake catastrophe insurance product from Ping An (and others) will help to shift the current model of village level reimbursement into a multi-channel multi-faceted one, with increased modeling capacity for critical infrastructure, aid provision and improved reconstruction capabilities.

Conclusion:

Amid all the hype about VC backed InsurTechs and innovation labs, it’s easy to forget that state actors are equally capable of innovation. This particular effort demonstrates the Chinese government’s ability to not only foster innovation but also deliver it directly and also ranks highly amongst digital insurance efforts for not only saving lives but also for encouraging individual consumers and homeowners to bolster the government’s ability to compensate victims of natural catastrophes by taking out private coverage.

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