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Is flood insurance feasible? experiences from the People's Republic of China

Author

Listed:
  • Walker, George
  • Lin, Tun
  • Kobayashi, Yoshiaki

Abstract

Flood insurance, a component of catastrophe insurance, is universally available in only a few countries. In many countries, it is available in a restricted form and its conditions vary greatly. Coverage is usually denied to those regarded as relatively high risk for flooding. This working paper analyzes the feasibility of providing flood insurance vis-à-vis the experience in the People's Republic of China (PRC). Specifically, it presents the findings of an ADB-funded pilot study on the feasibility of flood insurance in the Xinhua County Town. Based on a sample building survey of Xinhua, a technical analysis of flood insurance risk in terms of location, construction type, and occupancy at each floor level was conducted, and the study determined premium rates based on both indemnity insurance and parametric insurance approach. A survey of affordability, undertaken in conjunction with the building survey, enabled an assessment of the technical feasibility of flood insurance. Operational feasibility was investigated by examining several alternative systems, ranging from a fully reinsured self-supporting commercial approach to a system subsidized, managed, and guaranteed by the government. Although this study was based on a relatively small rural city in a relatively poor region, the results as far as the feasibility of normal indemnity flood insurance is concerned are little different from the experience with flood insurance in the developed world. In this time when the PRC is experiencing rapid urbanization and a surge in building construction, a particularly relevant policy direction arising from the study is for the government to provide a policy package and an enabling environment to ensure the implementability and sustainability of flood insurance, including flood maps and building codes.

Suggested Citation

  • Walker, George & Lin, Tun & Kobayashi, Yoshiaki, 2009. "Is flood insurance feasible? experiences from the People's Republic of China," MPRA Paper 21254, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:21254
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    File URL: https://mpra.ub.uni-muenchen.de/21254/1/MPRA_paper_21254.pdf
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    More about this item

    Keywords

    flood insurance; catastrophe insurance; China; Xinhua pilot study; flood risk;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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