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INSURANCE

Most in quake zone had no coverage

Many victims of the China disaster who had policies found they were useless.

June 24, 2008|Don Lee | Times Staff Writer

SHANGHAI — As a customer-service manager at China Pacific Property Insurance Co., Shen Jie paid visits to dozens of policyholders whose homes and cars were destroyed or damaged by the May 12 earthquake. After recording each case, he could only shake his head.

"It's a shame that we can't compensate any of these car and house claims," said Shen, 38, who works at the firm's Mianyang branch in Sichuan province.

That's because in all but rare cases, earthquakes are specifically excluded from property insurance coverage in China; as in California, you have to buy a special policy and pay extra. This exclusion is supposed to be highlighted and made clear to customers by insurance agents. But lawyers and industry experts say many earthquake survivors had no idea that the policies that some had dug out from the rubble of their homes were worthless pieces of paper.

"Many quake victims actually had asset insurance, but it was of no use to them this time," said Chen Yu, a Chongqing attorney who volunteered in the quake zone providing legal counseling. For some of them, he said, "the waiver terms were not so obvious in the contract, so they didn't even know [they weren't covered] until they went to file for compensation."

As of mid-June, China's insurance industry had received 249,000 quake-related claims, most of them for personal property damage, according to the China Insurance Regulatory Commission. Property insurers thus far have paid only about $20 million in compensation, much of that to companies whose factories were damaged. That's a sliver of the $15 billion to $20 billion of property that risk management firms have estimated was destroyed. About 3 million houses collapsed in the quake.

The magnitude 7.9 temblor, centered in a mountainous area of Sichuan province, claimed more than 69,000 lives, and about 17,000 people are still listed as missing.

Life insurance and various types of accidental death and disability coverage generally don't have waivers for earthquakes, but only a tiny fraction of people hold such policies. Insurers for those kinds of policies have paid out $26 million for quake-related claims, the insurance commission said.

The small payouts reflect the low standard of living in China's rural west as well as a general lack of awareness of insurance. About 150 million Chinese -- less than 12% of the population -- have some kind of insurance, said Hao Yansu, dean of the School of Insurance at Central University of Finance and Economics in Beijing.

That small percentage isn't just because of low incomes, however. Hao noted that Chinese insurance sales agents often push policies as investments, giving consumers the wrong notion about insurance.

"To attract customers, some salespeople talk nonsense or make empty promises," Hao said. "When customers actually ask for compensation, they would find out it's different from what they were told. As a result, many people don't trust insurance."

The fact that property coverage excludes earthquakes only bolsters consumers' notion that insurance is a rip-off. Hao said the genesis of the exclusion was a gathering of earthquake scholars in Nanjing in 1996. Those experts predicted that China would enter an active seismic period in the succeeding 10 to 20 years. The conclusion wasn't official, but learning of it, People's Insurance Co. of China -- one of China's biggest property insurers -- canceled earthquake coverage. Other insurance firms followed suit.

China's insurance commission was established two years later. It required insurers to highlight such exclusions in their contracts, but consumer advocates say that rarely happened. Now, some have hope that things will change at least a little.

"I believe this earthquake will be a turning point for the insurance industry," said Dong Xugong, an attorney with Sichuan Orient Land Law Firm in Chengdu, the capital of Sichuan province. "In the future, society will require insurance companies to better fulfill their duties, including fully informing buyers of potential risks. And many customers will be more aware that the insurance they are buying has flaws. Then they will have stronger awareness to protect themselves."

The insurance commission didn't respond immediately to requests for comment. A spokeswoman for the Sichuan Insurance Assn. also declined to comment.

In the aftermath of the quake, some insurers have expedited claims or processed payments without requiring all the usual documents.

"It seems that we haven't done enough work to let people here better understand insurance," said Chen Yongling, a spokesman for Ping An Insurance in Chengdu. "At the same time, the disaster made many victims understand the importance of insurance."

Wang Duoyun, 42, whose tea shop in Hanwang was flattened, says he knew about the quake-waiver clause. That's one major reason he refused to buy property insurance for his business.

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