China: Country to face more exposure to specialist risks

Diversifying risk is a necessity for China as the country becomes more industrialised and urbanised, says Mr John Nelson, chairman of insurance market at Lloyd’s of London.

China will become increasingly exposed to specialist risks, such as business interruption, cyber security, energy and property as its economy matures, he adds.

Insurance penetration is still low in China, Mr Nelson told the China Daily. He cites the devastating earthquake in Sichuan Province in April this year as an example. Only 1 percent of the estimated economic losses was insured.

As the Chinese government often funds the relief for big disasters, such as earthquakes, China may have the resources to meet such sudden economic shocks. But, in the long term, it is more sustainable to diversify risks with the help of international insurance carriers, he says.

“At the moment everything is self-insured by the government and paid for by the people. But if you look at developed economies worldwide, they’ve all gone for the risk transfer model. China is also on its way down that road,” he said.

He says one such example is the floods in Thailand, which can create significant economic losses when they occur. But with Thailand’s economy maturing, many foreign insurance companies have entered the Thai market with reinsurance solutions to mitigate risks. “The risk is thus dissipated away from the host economy. Since the losses are insured, great economic benefits can also be expected,” he said.

Lloyd’s presence in China was recently established. It opened a representative office in Beijing in 2000 and an underwriting office in Shanghai in 2007. It is working to upgrade its presence in Beijing to that of a branch.

Mr Nelson says Lloyd’s entry into Shanghai “was very much noticed”, explaining that the group effectively facilitated the entry of several other international insurance companies that did not have the resources to set up subsidiaries in China themselves.

“China is very important to Lloyd’s. Historically most of our business comes from developed markets, but significant growth is also coming from the emerging markets, led by China,” he said.

Currently, Lloyd’s Shanghai has nine syndicates, which are Ace, Arch, Brit, Catlin, Kiln, Navigators, Sportscover, Starr and Travelers. Together they underwrite around US$300 million, an amount that has tripled over the past five years.

He says if Chinese carriers become syndicates of Lloyd’s, they will also have access to Lloyd’s licence worldwide and benefit from the Lloyd’s brand. Lloyd’s expertise in risk assessment for insurance business could also be a helpful tool for Chinese companies, he says.