The Tianjin explosion has highlighted the danger of China's low insurance penetration rate, meaning that recovery and compensation will place a larger burden on public sector funds, experts say.
They also say the lack of diversification of China's insurance market will mean domestic insurers, and consequently the domestic economy, will bear a large share of the costs, unlike mature economies that spread their insurance risks widely through global reinsurance firms.
According to estimates by Credit Suisse, insurance losses could total nearly 1.57 billion USD after two explosions in the Chinese city killed more than 100 people, with 64 still missing and hundreds injured.
John Nelson, chairman of Lloyd's of London, says the Tianjin disaster is a reminder of the importance of insurance to an economy, and of the need for diversification of risk, which can be achieved by further liberalization of the market.
The study also showed that a 1-percent increase in insurance penetration translates into a 13-percent reduction in uninsured losses, a 22-percent reduction in the taxpayers' contribution following a disaster, and increased investment equivalent to 2 percent of GDP.
Nelson acknowledges that Chinese regulators are liberalizing the insurance market both by building up a strong domestic insurance market and encouraging foreign participation, as well as encouraging Chinese insurance and reinsurance firms to go global.
However, he says further liberalization could help encourage further diversification of risk outside of China.
Currently, however, domestic insurance firms would contribute a greater proportion of capital for the insurance when they share their risks with foreign reinsurance firms compared with domestic reinsurance firms, he says.
The Tianjin explosion has highlighted the danger of China's low insurance penetration rate, meaning that recovery and compensation will place a larger burden on public sector funds, experts say.
