Lack of insurance

Low insurance penetration in the affected area and the fact that most Chinese insurance policies do not cover catastrophes like earthquakes have been cited as factors that will limit the quake's impact.

However, the quake has also laid bare challenges facing the insurance industry.

The insurance penetration rate, or premiums as a share of GDP, was just 3 percent in 2011, according to statistics from the People's Bank of China.

The number is far below the global average, according to analysts, who added that a general lack of insurance awareness in China is acting as a roadblock for the expansion of the sector.

Disaster insurance is almost non-existent in China. Although the government and charities typically spend large amounts of money on relief and reconstruction efforts in the event of a disaster, the majority of property insurance policies do not cover natural disasters.

People with home and automobile insurance policies, which account for 70 percent of the total number of insurance policies currently held, cannot be compensated in the event of an earthquake.

During national legislative sessions held in March, Xiang Junbo, chairman of the CIRC, reportedly said that insurance regulators will soon consider state-supported insurance plans for dealing with natural disasters.

"In countries with fewer financial resources, a catastrophic event can result in higher deficits and debt for the public sector, which must not only shoulder the cost of relief efforts, but is also held responsible for rebuilding public infrastructure," according to a report by Swiss Re, a leading global re-insurer.

It is high time to establish an effective catastrophic risk transfer mechanism, Chen and Tong said.