The conception and theory of climate insurance and its enlightenment to China

doi:10.12006/j.issn.1673-1719.2019.137

Abstract

Abstract:

Climate risks may cause tremendous mortality and property losses, and climate insurance is an effective measure to manage climate risks by transferring and spreading them. Firstly, based on the discrimination of the theoretical basis of the fundamental definition and the market mechanism of climate insurance, this study points out and analyzes two main problems of this kind of insurance: the dissatisfaction of Law of Large Numbers, the existence of moral hazards and feedback effects. Secondly, this paper teases out the development of climate insurance in developed countries, which is relatively mature: its function of transferring and spreading risks is relatively strong due to a portion of government subsidies to insurance premium, emergency government loans, reinsurance and insurance derivative instruments. However, it faces problems of adverse selection and moral hazards. Finally, this study analyzes the statuesque in China, finding the problems that the climate insurance products are quite limited and the public willingness to pay is relatively weak, and then proposes suggestions to perfect the climate insurance in China: first, to improve weather station infrastructure, to develop natural disaster risk maps, and to increase public and sensitive industries’ willingness to purchase climate insurance in order to make it meet the Law of Large Numbers; second, to urge insurance companies to consider non-economic cost when designing insurance products to avoid moral hazards and feedback effects in advance; third, to promote climate reinsurance and insurance derivatives at the proper time.

Key words: Climate insurance, Law of Large Numbers, Adverse selection, Moral hazards, Feedback effects

Guang-Qing XU, Xiao-Yu CHEN, Hai-Bo LIU, Dan-Ze HUANG, You-Yi ZHANG. The conception and theory of climate insurance and its enlightenment to China[J]. Climate Change Research, 2020, 16(3): 373-382.

Figures/Tables 1

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