China may roll out its first weather insurance coverage before the end of the year to help farmers cope with economic losses from natural disasters.

"The policy will first be carried out on a pilot basis in Fujian province, an area that is frequently hit by typhoons," a source with a major insurer told China Daily on Monday.

A weather index insurance will pay out a contractually predetermined amount should the observed result meet the policy's requirement. It is different from traditional agriculture insurance, which requires adjustment for losses and claims auditing.

"Such a policy will largely reduce insurers' underwriting cost and boost their initiatives to underwrite more agriculture insurance - a usually loss-making business," said Hao Yansu, a professor of insurance policy at the Central University of Finance and Economics.

The country's current insurance coverage is unable to offer adequate compensation for losses from catastrophes, statistics from the China Insurance Regulatory Commission (CIRC) showed.

Insurers cover about 30 percent of losses from natural disasters in developed countries, but that figure is below 5 percent in China - a country that is frequently hit by a wide range of natural disasters.

As of last Friday, about 38.2 million people in 10 southern provinces and Chongqing municipality had been affected by continuous rainstorms and floods since July 1, the Ministry of Civil Affairs said in a statement on its website.

About 124,000 homes have been destroyed and more than 1.3 million people relocated, it said. Direct economic losses were estimated at about 29.5 billion yuan ($4.4 billion), up from Thursday's 26 billion yuan.

The weather insurance project was launched last September as an important part of an economic cooperation deal signed by China and Germany last year. The CIRC and the China Life Property & Casualty Insurance Company Limited promoted the project.

"Weather index insurance could play an important role in helping farmers mitigate their economic losses and rebuild their homes, especially when there is still no catastrophe insurance scheme in China," said an analyst with the country's major non-life insurer.

Global losses from natural disasters in 2010 could be three to five times what they were in 2009, said Thomas Hess, chief economist of the world's second-largest reinsurer, Swiss Re.

Economically advanced nations tend to purchase more insurance coverage, which helps to finance the costs of reconstruction. Less developed economies can also benefit from insurance coverage, especially if the public and private sectors - insurers, reinsurers, brokers, governments and international agencies - work together, Hess said.