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Only a small part of quake losses would be covered by Chinese insurers, as the under-developed economy and low income levels of the quake regions had affected people's enthusiasm for buying policies, the financial and industrial research institute of Northeast Securities said in a report on Tuesday.

The 8.0-magnitude earthquake that struck southwest China's Sichuan Province last Monday had seen the death toll rise to more than 40,000 by Tuesday.

Altogether 14.6 million yuan ($2.09 million) of indemnities had been paid by the country's insurance companies as of Sunday, including those for 4,434 deaths and 2,841 injury cases.

"China has long relied on state finance and public donations in disaster relief and recovery, with only about five percent of direct economic losses covered by commercial insurance, much lower than the global average of 36 percent," Pang Jiying, vice chairman of China Reinsurance (Group) Corporation, has said.

Huge room

The quake would have temporary and minor effects on the profits of Chinese insurers but could boost their long-term growth as more people were likely to buy insurance after the quake, said a Guotai Jun'an Securities report.

Chinese insurers have huge room to extend their business, especially to rural regions, as analysts noticed the quake-hit regions were little secured.

The insurance penetration, which measures premiums as a percentage of gross domestic product, was 2.74 percent for Sichuan in 2006, below the 2.8-percent national level, said Northeast Securities.

It said the density of insurance, or the average premium per capita, was 275.39 yuan in Sichuan, less than the national 431.2 yuan.

The awareness of buying insurance was much higher in big cities like Chengdu, Mianyang and Deyang than in remote counties and villages such as the epicenter Wenchuan, while the latter were the hardest hit regions, according to the report.

"In north Sichuan's Aba Prefecture, where Wenchuan is, premiums accounted for only 0.17 percent of the provincial total, with life insurance premiums standing at zero," said Guotai Jun'an Securities.

In terms of property insurance, only the People's Insurance Company (Group) of China has started services in Aba, but earthquakes are usually not covered by property insurance in China, said Northeast Securities.

Catastrophe insurance in need

"The absence of a catastrophe insurance system will bring about huge hidden risks for China's future economic and social development," said Wang He, vice president of the PICC Property and Casualty Company Limited, China's leading property insurer. "It's an urgent need to establish such a system."

For example, the Sichuan quake could threaten financial stability if banks faced more bad housing loans as many house owners had been killed or made too poor to pay off the debts, said Wang.

Once economic loss surpasses 5 percent of the yearly national gross domestic product value, disasters will obviously impact prices and economic development, said Wei Hualin, head of the Wuhan University's insurance economics research institute.

Official figures show China suffered about 200 billion yuan of economic losses each year from disasters such as earthquakes, floods and typhoons in the past decade.

One of the reasons for the lack of catastrophe insurance in China was weak legal support, said Pang, adding that some types of insurance were compulsory in the United States and Japan to ensure their coverage.

He also suggested favorable financial and tax policies from the government to guarantee the solvency of insurers and re-insurers in calamities.