Earthquake in China causes estimated US$10 to US$20 billion in property damage

A 7.9-magnitude earthquake that rocked China on May 12 is estimated to have caused damage losses ranging between US$10 and $20 billion, according to catastrophe modelers.
Risk Management Solutions (RMS) estimates property losses to be between US$10 and US$15 billion, while AIR Worldwide Corporation estimates total losses will exceed US$20 billion (with insured losses between US$300 million and US$1 billion).
Infrastructure damage and interruption to economic activity caused by the earthquake will amplify the total loss as the full financial impact of the disaster unfolds, RMS notes.
Only a fraction of the property losses will be borne by the insurance sector, RMS reports. Nevertheless, the quake is likely to result in the highest insured losses in China to date.
The quake is reported to have occurred in a relatively sparsely-populated area, but it was powerful enough to cause damage 90 kilometers away in the city of Chengdu, where more than 30 Fortune 500 companies and 12,000 domestic organizations are located.
“Insurance penetration varies significantly by line of business, ranging from negligible for residential property, to more than 50% for high-end commercial buildings in Chengdu, and full coverage for the industrial facilities owned by multinational companies,” an RMS release says.
There is a high level of uncertainty in insured loss estimates in China, AIR cautions in a release.
“The insurance market is rapidly developing and earthquake coverage is optional for both residential and commercial policies,” AIR notes.
Insurance take-up rates are likely minimal for residential properties in this area and likely only marginally higher for commercial property, AIR estimates.