Parametric solutions for natural catastrophe insurance in China

Parametric solutions are innovative and effective ways to narrow the protection gap in China, where natural catastrophe risk is significant. It is especially true when it comes to agriculture.

Nearly 40 insurance professionals and government officials from Heilongjiang, Guangdong, Shanghai, Anhui and other parts of China gathered with international experts at the International Agricultural and Natural Catastrophe Insurance Forum to learn from two successful pilot projects in the Heilongjiang and Guangdong provinces of China. Held on 13-15 October 2016 at the Swiss Re Centre for Global Dialogue in Zurich, the forum enabled participants to explore the feasibility of introducing parametric solutions across China.

In addition, experts from Swiss Re and other organisations shared with participants the latest developments in flood risk management, catastrophe bonds, agricultural and aquaculture insurance, public and private partnerships, as well as their experiences in closing the protection gap.

Closing protection gaps for farmers in Heilongjiang

Signed on 1 July 2016 with the Heilongjiang government, Sunlight Insurance and Lian He Rong Hui Group (brokerage), this deal marks the first time that the Chinese Government has used commercial insurance programmes to protect farmers against losses resulting from natural catastrophes. Combining a weather index product with a satellite based flood parametric product, it is so far the largest natural disaster insurance programme in China. Swift payouts with parametric insurance will support financing relief and recovery.

The insurance also covers loss of income to allow farmers stay in business and keep on farming if struck by extreme events, such as flood, excessive rain, drought or cold spells. Altogether, this new insurance solution will help increase economic stability and improve food security.

Making cities more resilient in Guangdong

Guangdong, one of China's most important economic hubs, has a large population and is home to many global companies that have production facilities or subsidiaries there. Flood risk is huge there. The fast payout associated with parametric insurance offers Guangdong the certainty they need to help impacted areas recover quickly. This is crucial for an economic hub, especially where global supply chains come into play. Swiss Re worked closely with PICC to tailor the deal to Guangdong governments.

These parametric solutions equip the governments with fiscal resilience against disasters. They allow governments to manage their fiscal accounts with much less uncertainty and  provide stronger financial support during post disaster reconstruction, which would otherwise not be covered by the normal disaster relief budgets of governments.

With this Forum and a series of similar seminars, we hope to share the successful experience with more governments and partners to develop new types of solutions and new approaches that will hopefully not just help save lives, but also reduce risk to property, business and entire economies.