Most in quake zone had no coverage

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.

“I have a friend who tried to sell insurance to me,” said Wang, speaking from a refugee camp in Mianzhu. “But I thought it was meaningless, an unfair deal.”

Wang said it wasn’t so much the annual premium, which he recalled was just $12 to $13 some years ago, with a maximum payout of about $1,200. Rather, he said, the policy contained too many exemptions, including earthquakes and other forces of nature. The site of the Sichuan quake has long been known as an active seismic zone, having suffered major temblors in 1933 and 1976.

“So what’s the use of this?” Wang said.

Without insurance proceeds, Wang and many other business owners have few places to turn to rebuild. Many are waiting for aid or low-interest loans from the government.

It’s a different story for those with life insurance.

He Fuqiong, 34, weeps when she thinks about her husband, Liao Yunlong. On the afternoon of May 12, he was walking along a mountain path on his way home from work at a coal mine. When the quake hit, she said, boulders and rocks tumbled down and crushed him.

Their house, a one-story white structure with a red-tile roof, collapsed. “For the first few days, I was just crying and crying,” He said. Suddenly, she was a single mother of a 12-year-old boy. “I have nothing left. No house, no money, no husband.”

But then she remembered that three years earlier she and her husband had plowed their entire savings of about $1,425 into a life-insurance policy for him. The five-year contract with China Life Insurance Co. provided for annual interest payments of 2% to 3% and a lump-sum amount of triple the deposit in the event of his death. The couple locked the five-page contract in their wardrobe.

Her nephew rummaged through the rubble and dug out the agreement. A few days later, He took it to the insurance office, and this month, after volunteer lawyers helped push her claim, the company handed her more than $4,300 in cash. She put the money in the bank for her son.

“When I got the money,” she said, “I couldn’t help crying again.”

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don.lee@latimes.com

Cao Jun in The Times’ Shanghai bureau contributed to this report.