Wenchuan earthquake (2008)
A magnitude 7.9 earthquake in Sichuan on May 12, 2008: nearly 90,000 dead and missing and about 85 billion dollars of damage, with an insured loss well under 1%: the textbook case of the protection gap.
On May 12, 2008, at 2:28 p.m., a magnitude 7.9 earthquake hits Wenchuan County, in the mountains of Sichuan. Official figures count nearly 70,000 dead and nearly 18,000 missing, hundreds of thousands injured, collapsed schools that make headlines worldwide, and about five million buildings destroyed. Economic damage is estimated at around 85 billion dollars. Insured losses run to only a few hundred million, under 1%: nearly everything stayed on households and the Chinese state. The reason is structural. In 2008, earthquake insurance was little sold to individuals in inland provinces, insured businesses were mostly foreign subsidiaries or coastal facilities, and property insurance covered little of public infrastructure. The earthquake served as an argument for creating, in China, a draft national catastrophe insurance scheme, which advanced in stages, with earthquake insurance for rural housing and local pilots. For reinsurers, it showed the gap between economic exposure and insured exposure in emerging markets: the potential loss is large, but the loss to be reinsured is small, and market growth is the real factor.
Textbook case. Global reinsurer with USD 2bn of cat capacity on China. Earthquake with USD 85bn of damage, loss to its account of USD 40M, nothing like what a Florida hurricane of the same size would have cost it. But the reinsurer calculates that if penetration went from 1% to 10% in five years, a comparable earthquake would cost it USD 400M, and it revises its zone accumulations and rates in advance.
Wenchuan earthquake, Sichuan earthquake, Wenchuan 2008, 2008 Sichuan earthquake, Wenchuan insured loss
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