China’s insurers are providing critical protection to small businesses and their workers, creating a new model for economic recovery that is also now starting to appear across the West.

Millions of small and medium-sized businesses (SMEs) are struggling to survive Covid-19. In China, the insurance market has responded quickly, setting a high standard for the world to follow.

Leveraging their talent for innovation, China’s insurers have rapidly prototyped new commercial insurance policies. Alipay, the online payment platform, is offering a free business-interruption policy to micro SMEs, those that employ less than 20 people. The policy lasts 60 days and provides a maximum daily payout of RMB800 (US$100) for 14 consecutive days.

Pop-up policies like these won’t bring the economy back to normal, but they do buy time for businesses while policymakers roll back lockdown orders. More importantly, they demonstrate the industry’s empathy.

Ping An Insurance is also offering critical health protection to reopened businesses of up to 150 employees. Their scheme pays out up to RMB100,000 (US$14,000) to each employee that contracts Covid-19, with a limit of RMB1 million (US$140,000) for any one firm. Up to 500,000 companies can sign up to the plan, enabling them to prioritise public health over short-term profits. While no substitute for paid sick leave, health insurance or social distancing, policies like these may help to supress viral contagion. 

It’s also important to note that some Chinese companies are partly, or to some extent beneficially, owned by state entities and as such are instinctively orientated towards supporting national interests. Just as Chinese insurers underwrite the Belt and Road Initiative to further China’s foreign policy, they are now working in the service of its domestic policy.

In the West, insurers may not have the same relationship with the state, but they too are innovating for the greater good. It hasn’t been a smooth process, however, with many business-interruption policyholders discovering that their policies exclude losses relating to Covid-19. As claimants seek compensation in the courts and rally public support, trust in the industry has faltered.

Nonetheless, insurers are finding their way forward, developing new responses that fit the immediate needs of new and existing customers. These may not be perfect, but as China’s insurers have shown, even partial protection can go a long way.

In the UK, the Lloyd’s (re)insurance marketplace has said it will pay up to US$4.3 billion in claims, making it one of the market’s largest pay-outs ever. Lloyd’s has also said it is considering establishing a ‘Recover Re’ insurance vehicle to help businesses resume operations.

In the US, the P&C insurance trade group has confirmed that its members are voluntarily implementing new discounts and refunds for policyholders while also suspending premium billing for SMEs, among other measures. Other firms are reducing auto insurance payments, helping SMEs and individuals to cut their expenses while their income remains uncertain.

If history is any indication, the industry may be rewarded for its responsiveness to this crisis. In 1906, after the earthquake which flattened San Francisco, insurers found themselves exposed to claims worth over US$10 billion in today’s terms, the great majority of which were not covered under the prevailing policy conditions. Lloyd’s underwriter Cuthbert Heath famously instructed his agents to “pay all of our policyholders in full, irrespective of the terms of their policies”. From this decision, the industry’s reputation was made.

Insurers have long promoted their role as critical economic enablers. Now, in this hour of need, we are beginning to see what that really means. First in China and now across the West, insurers are rising to the occasion, laying the ground for the Covid-19 economic recovery.

*A version of this article was first published by Insurance Asia News.