Chinese insurers have started selling a policy covering earthquake damage, as the nation moves towards a market-driven approach to compensating disaster losses.

The China Insurance Regulatory Commission (CIRC) says homeowners can buy a policy with a maximum payout of 1 million yuan ($196,200) covering loss and damage to property caused by quakes of magnitude 4.7 and above.

The cover will be sold by insurers nationwide, with premiums adjusted for factors such as location and construction of property and the probability of quakes, Chinese media reports.

CIRC official He Hao says earthquake insurance will not be mandatory initially, and it is aimed at stimulating market participation to diversify loss and risk following devastating events.

The insurance regulator is also working towards legislation for a catastrophe insurance system, and is expected to complete the legal work next year, he says.

Guo Hong, an official from the Insurance Association of China, says policymakers will in future seek to expand catastrophe coverage beyond earthquakes to other major natural disasters.