Insurance will be key to the economic and social development of natural catastrophe prone China as the market opens up, Munich Re says in a new report.

The giant German reinsurer says that although China’s insurance market is growing strongly and already ranks sixth in the world, it is still fundamentally in the early stages of development.

It points out that four of the 10 earthquakes with the highest death tolls since 1900 have happened in China, and that the country frequently suffers from weather-related natural catastrophes such as typhoons and floods.

“China’s 10 largest flood events since 1980 accounted for overall losses of more than $US135 billion ($152 billion) but – in contrast to the western industrialised nations with their high insurance penetration – insured losses amounted to only 1-2%,” the report said.

It says climate change researchers assume that while the number of typhoons may not rise in future due to climate change, they could be more intense and the nation will feel the effects of rising sea levels.

The report says while the insurance market is gradually opening up, multinational insurers which Munich Re works with in China still frequently reach their limits, with licences often being granted for specific regions only. It says insurers need to achieve a “critical size” as quickly as possible to be economically viable.