BEIJING (Bloomberg) — The most powerful earthquake in China since 1950 shows the nation's insurance industry is decades behind those of the world's other biggest economies.

Just five percent of the more than $20 billion of damage from the quake in Sichuan province is covered by insurance, according to estimates from an official at the China Insurance Regulatory Commission. By contrast, about half of the $120 billion of estimated costs from Hurricane Katrina, the most expensive storm in US history, was insured by companies or the federal government, data compiled by analysts at Jersey City, New Jersey-based Property Claim Services show.

"The earthquake underscores how much room insurers have to penetrate into rural China," said Zhang Ling, who oversees $1.1 billion for ICBC Credit Suisse.

Asset Management Co. from Beijing and holds Ping An Insurance (Group) Co. shares. "There'll be much more momentum and government support to do that after this year's natural disasters."

China Life Insurance Co. and Ping An, the nation's biggest insurers, have yet to extend their reach across China, where only four percent of the nation's 1.3 billion people have insurance, according to data compiled by KPMG International.

By contrast, 77 percent of Americans own some type of life insurance policy.

The 7.9 magnitude quake has killed more than 22,000 people since May 12, damaged and destroyed homes and buildings in 44 counties and districts in Sichuan, and directly affected about half of the 20 million people who live in the region. At least 30,000 people remain buried under rubble.

"If a disaster like this happened in Europe or the US, the claims situation would be very different," said Michael Spranger, a Hong Kong-based earthquake analyst at Munich Re, the world's No. 2 reinsurer, after Swiss Re. "Natural disaster coverage rates are very low across Asia, in the single digits."

The Niigata earthquake, which struck central Japan last July, recorded total damages of $3 billion, with insured losses equivalent to 10 percent of the total, according to Clarence Wong, chief economist for Swiss Re Asia in Hong Kong.

China's quake occurred four months after the country's worst snowstorms in 50 years forced the evacuation of more than one million people and damaged at least one million homes. Insurers probably will get more aggressive about pursuing policy sales in rural areas as this year's 26-percent decline in China's benchmark CSI 300 Index threatens earnings growth, Zhang said.

China Life's net income dropped 61 percent in the first quarter, while Ping An's rose at the slowest rate in the same period since the company's initial public offering in 2004. China Life fell 19 percent in Hong Kong trading this year and Ping An declined 16 percent.

Developing rural and natural disaster insurance is a top priority for the Chinese government, and there's even greater momentum now, according to the industry regulator official in Beijing. China may soon set up a natural disaster insurance system, which would be subsidised by the government and include private-sector involvement, said the official, without providing further details.

China's insurance penetration, which measures premiums as a percentage of gross domestic product, was 2.9 percent last year, ranking 49th in the world, according to statistics compiled by Zurich-based Swiss Re. That compares with nine percent in Western Europe and 7.6 percent in the US in 2006, the latest available figures for those regions from Swiss Re.

Sichuan province, located in south-central China, accounted for 4.8 percent of the country's 2007 premiums. Earthquake insurance is provided at an additional premium at the policyholder's request, said Peter Zimmerli, a vice president in Swiss Re Asia's property and casualty group.

"Earthquake insurance penetration is generally very low, and for residential covers practically non-existent," he said.