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China In-Depth: Natural Catastrophe Prevention

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Global insured losses from natural catastrophes in 2018 were $76 billion, the fourth highest on record. Additionally, Asia suffers disproportionately from the forces of nature due to geographic conditions and seismic activity. Although government agencies have historically been given cash pools to help locals recover post-disaster, Asian governments are recognising the power of public/private partnerships combined with new technologies to enable a proactive rather than reactive approach to NatCat efforts. Although there are many efforts currently underway, several government lead initiatives in China have set a template for the region:

  1. First, the introduction of legislation that will make government-held natural catastrophe data available for modeling by private reinsurers engaged in public/private partnerships.
  2. Second, the provision of tax incentives and government contracts to stimulate startup activity. Government induced technological breakthroughs have been 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 a disaster.

Considering the above efforts, and the fact that the government is increasingly turning to the private sector to assist in detection, prevention and recovery across major natural catastrophes.


Floods are the most common natural disaster in China. They are also the costliest, making up 24% of economic losses caused by natural catastrophes. Additionally, the number of cities affected by floods has more than doubled in ten years as urban China expands much faster than its drainage infrastructure can.

Against this, state-owned re-insurers such as China Re have opened research centres with access to government data on natural catastrophes and staffed with meteorologists, hydrologists, seismologists and geographers tasked with modeling the impact of natural disasters and devising mitigation measures.

For private insurers, partnerships with government-sponsored research centres such as these are enabling high-resolution flood modeling that extrapolates daily rainfall and river flow levels, weather patterns, and terrain data, in order to generate a catalogue of flood events and the associated losses that can be resolved at building-specific granularity as opposed to village level settlements that are currently standard across China.

However, as much as computational modeling is deployed to assess the impact of natural catastrophes, the need to develop tailored insurance products that meet local requirements and regulatory standards, in addition to promoting a mindset of prevention among local governments is becoming equally important.

Earthquake Detection and Mitigation:

China’s positioning between two seismic belts means it has suffered a streak of major earthquakes in the last century, amounting to 53% of total earthquake casualties worldwide.

Furthermore, four key zones account for 96% of all recorded earthquakes in China. Considering this, and the concentration of earthquakes within certain provinces, the government has encouraged public/private partnerships and a three-pronged strategy has been developed to mitigate the impact of earthquakes:

The first is detection. China has begun the construction of 15,000 monitoring stations to pick up seismic activity 20 kilometres below the surface of the earth.

Second, prevention. Considering that a 3-second warning of an impending earthquake can save 14% of casualties, 10 seconds can save 39% of casualties, and 20 seconds can save 63% of casualties – data collated from seismic monitoring stations has been provided to telcos to warn residents by way of SMS in case of earthquakes. 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 coordinate the distribution of supplies and identify water shortages.

Third, recovery. New forecasting models developed in collaboration with state-level research centres are being used to coordinate the provision and distribution of resources in the aftermath of a flood, earthquake or typhoon.

China’s internet giants are playing their part too. Tencent has launched several nat cat recovery charity groups within WeChat, whilst Alibaba has invested US$1.6 billion to build 1,000 county-level and 100,000 village-level service centres to help rural communities participate in the trade with China’s east coast urban metropolis.

Ultimately, whilst China is pursuing a three-pronged approach to earthquake mitigation, just 6 per cent of rural homes meet anti-seismic design requirements, and there is continued work underway retrofitting public infrastructure such as schools and hospitals to meet seismic codes.

Crop insurance

China’s government subsidises agricultural insurance for a staggering 160 million farmers. However, reimbursement schemes assessed at the village level means many farmers are under-compensated in the aftermath of a disaster.

Considering this, and the fact that agricultural insurance represents just 0.6% of non-life premiums, China is again using public/private partnerships to lower the protection gap in an industry that accounts for 40% of China’s employment. One of these partnerships is between Guangdong provincial government and Swiss Re. The idea is to use data from the China Meteorological Administration (CMA) on typhoon, wind speed or heavy rainfall, which can parametrically trigger insurance payouts in unison with government relief efforts for rural communities in the aftermath of a disaster.

Additionally, a recent Swiss Re agricultural insurance program in Hebei province uses parameters such as cyclone wind speed or rainfall amounts to trigger policy claims.

Although the cost of distributing agricultural insurance can be high, as agents must travel to remote rural areas to issue policies and the claims process can be even lengthier, the penetration rate of smartphones in rural China is approaching 80% and that facilitates an efficient and convenient information service for farmers. Smartphone penetration also provides a wide range of applications, including an early warning system via WeChat that has proved crucial in popularising agricultural technology more widely.


Until recently, relying solely on government subsidies and aid has been an effective albeit expensive way to combat natural catastrophes in China. However, a recognition that it’s not enough to rebuild livelihoods and respond to natural catastrophes when they happen, but rather to invest in ongoing disaster readiness and mitigation measures is a more effective formula than financial aid. Although new technologies deployed by government-sponsored organizations may seem an unlikely way to tackle national challenges, it has worked before in China, and the addition of public/private partnerships has proven an effective way to encourage multi-national re-insurers to enter China’s active nat cat market.


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