Swiss Re reinsures biggest natural disaster insurance programmes in China

Swiss Re has just launched the second of two significant parametric insurance programmes in China. The first covers 28 rural provinces in Heilongjiang, and the second covers seven prefectures in the economic powerhouse of Guangdong.

The maximum protection amounts to about USD 350 million dollars in both cases, making them the two largest commercial natural disaster protection schemes ever established in China.

The city of Shanwai, struck by super-typhoon Haima  received a payout from the insurance company on October 25, less than a week after the impact – demonstrating how the model works.

"Three years ago, Swiss Re initiated a study to map the structure of China's existing disaster risk insurance system in collaboration with a prominent Chinese think tank. Since then, we have been working in close collaboration with the relevant Chinese authorities and insurance regulator to finalise the development of these pioneering models," said Gary Wei, Head Global Partnerships China.

Turning contingent liabilities into contingency capital

The premise of the study is that more often than not, the financial capability of governments is far below their contingent liabilities for disaster relief. But delaying recovery measures due to lack of funds, can also spell long-term disaster for the economy of the affected region. A financial injection triggered by insurance can therefore help to lower the pressure on public budgets, and elicit a faster response to getting the region back on its feet.

The conclusions of the study captured the attention of the leaders of Heilongjiang Provincial Government and several heads of Guangdong prefectures. They were particularly interested in exploring the model as a public private partnership scheme, and agreed to cooperate with Swiss Re to implement two pilot programs to test the model. Collaborating with a pool of local insurers, Swiss Re served as technical advisor and exclusive reinsurer for the scheme. The pilots will go on to serve as models for scalable and replicable public private partnership schemes.

Collaboration is key

Several representatives from Heilongjiang and Guangdong visited Swiss Re's Centre for Global Dialogue in mid-October to take stock and further fine-tune the models. Deputy Minister Wa Mentong, from the Provincial Government of Heilongjiang said: "Through this partnership, we've taken an important step to address agricultural risk prevention and government assisted poverty alleviation in our region."

Weilan Zhang, Deputy Head of Guangdong Zhanjiang Finance Bureau, said: "The policy is tailored for each of the 10 prefectures in the pilot scheme to address the local natural catastrophe situation. We look forward to continuing our journey of innovation and development to further fine-tune this pioneering solution together with Swiss Re."

Said Gary Wei: "This innovative parametric insurance solution will allow public sector entities in China to better manage better fiscal risk connected with natural disasters. We hope that other provincial governments in China, and in other parts of the world, will follow suit, and be able to benefit from these disaster resilience models."