Ramping up natural disaster insurance in China

In 2016, we helped to establish two significant insurance pilot programmes against natural disaster risks in China. Both offer protection of up to around USD 350 million, which makes them the largest commercial natural disaster insurance schemes in China to date. Furthermore, both use parametric triggers, which means they can pay out quickly in the event of a disaster.

The first of the two programmes involves the government of Heilongjiang Province and the Sunlight Agriculture Mutual Insurance Company of China. It protects farmers in 28 poor rural counties of the province against the financial consequences of natural catastrophes, specifically floods, excessive rain, drought and low temperatures. Combining a weather index product and a satellite-based parametric product, the programme covers harm to lives and property as well as loss of income. As the programme’s sole reinsurer and technical adviser, we used advanced modelling techniques to design this innovative solution – the first of its kind.

In the second pilot, we act as sole reinsurer to protect ten prefectures of Guangdong Province against damage from tropical cyclones and excessive rainfall, in cooperation with local insurers, including the People’s Insurance Company of China (PICC, www.picc.com). This, too, is a parametric product, using rainfall and wind speed indices to allow for faster payouts. Having quick access to emergency funding after a natural disaster is particularly important in Guangdong. It is one of China’s most important economic hubs and home to many global companies, but faces a severe natural disaster risk.

You can read more about the background of these pilot programmes in Our Centre for Global Dialogue.