Prospects for disaster management in China and the role of insurance

ABSTRACT

Natural disasters have serious negative consequences for China and it is necessary to build an effective and efficient disaster relief system. This paper aims to provide suggestions for how to restructure and optimise China’s disaster relief system. This paper first discusses the four main channels through which relief funds are currently distributed in China while also examining the relative share of relief funds directed through each channel. Then, the advantages and disadvantages of these relief channels are compared. Finally, suggestions for how China can reduce the negative economic and social impacts of natural disasters by restructuring and optimising its current disaster relief system are provided. The paper presents several main findings. Currently, government-channelled funds are the most important source of disaster relief in China. However, the actual ratio of relief funds from the government to the total amount of losses and the ratio of relief funds from the four channels added together are both very low. This paper argues that the role of commercial insurance in disaster relief is far from sufficient. Importantly, suggestions are also provided on how to restructure the system and on the relative role that each of these channels should play in China’s disaster relief system.

KEYWORDS:

• Natural disaster
• disaster relief
• catastrophe insurance
• government assistance
• mutual aid

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 The original ‘China Insurance Regulatory Commission’ and the ‘China Banking Regulatory Commission’ have merged into the ‘China Banking and Insurance Regulatory Commission’ in 2018.

2 Data source: the local branches of CBIRC.

3 A mismatching case is one in which, for example, rural housing insurance only covers the rural houses but excludes other properties (Li et al., 2015). Another example is that those people who face higher disaster risks may not necessarily recognise the importance of insurance as a coping mechanism (Wang et al., 2012).

4 Yunnan and Sichuan are both provinces where earthquakes are common, so that a targeted earthquake insurance has been offered. As the losses caused by an earthquake can usually be devastating, more insurance companies need to work together to share the risks.

5 In 1969–1998, catastrophe losses ranked 3rd among the reasons for the bankruptcy of American insurance companies (Hu, 2008).

Additional information

Funding

This work was supported in part by National Natural Science Foundation of China [grant number 71673050] and by Gaofeng Research Project of School of Economics, Fudan University.