The 7.9-magnitude earthquake that recently struck China has claimed an estimated 15,000 lives to date and has dramatically disrupted the lives of many more. Although the full extent of the damage inflicted by the quake, which made its formidable presence on May 12, is not yet clear, Risk Management Solutions (RMS) has assigned a preliminary price tag to the resultant property losses: between $10 billion and $15 billion.

The catastrophe expert and the Institute of Engineering Mechanics (IEM) have been working in tandem to assess the damage since the event occurred. Their figure takes into account damage to residential, commercial, and industrial properties. It does not, however, reflect losses related to infrastructure and interrupted economic activity, which carry significantly larger financial implications.

Though concentrated in a somewhat sparsely populated area, the seismic event affected Chengdu, which is situated 90 kilometers from the epicenter. As China's tenth largest city by gross domestic product (GDP), Chengdu is home to more than 30 Fortune 500 companies and 12,000 domestic organizations.

RMS notes that even though only a fraction of the property loss will impact the insurance industry, an event of this magnitude is still likely to cause the highest insured losses in the country to date.

“Insurance penetration varies significantly by line of business, ranging from negligible for residential property to more than 50 percent for high-end commercial buildings in Chengdu and full coverage for the industrial facilities owned by multinational businesses,” the company said.

China's central region, where many companies have moved operations because of cheap labor and low property costs, is particularly vulnerable to seismic activity, as is much of the country. However, Domenico del Re, senior model manager at RMS, urged insurers and reinsurers to not overreact and directed the focus to weighing the ramifications of disrupted operations, especially as they pertain to manufacturing.

“This event does not signify that earthquake risk is uninsurable in China,” he said. “Tools are readily available for insurers and reinsurers to price and manage the risks effectively. Business continuity will be a fundamental issue, as the affected areas are burgeoning manufacturing zones. “Some companies have already reported disruptions to operations, which could have serious ramifications no only for the companies themselves but also for those downstream in the supply chain.”

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Special Reports /

Property Losses Mount After China Quake

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