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Climate Change, Catastrophe Risk, and Government Stimulation of the Insurance Market: A Study of Transitional China

The Political Economy of Chinese Finance

ISBN: 978-1-78560-958-9, eISBN: 978-1-78560-957-2

Publication date: 12 November 2016

Abstract

Purpose

Due to climate change and an increasing concentration of the world’s population in vulnerable areas, how to manage catastrophe risk efficiently and cover disaster losses fairly is still a universal dilemma.

Methodology

This paper applies a law and economic approach.

Findings

China’s mechanism for managing catastrophic disaster risk is in many ways unique. It emphasizes government responsibilities and works well in many respects, especially in disaster emergency relief. Nonetheless, China’s mechanism which has the vestige of a centrally planned economy needs reform.

Practical Implications

I propose a catastrophe insurance market-enhancing framework which marries the merits of both the market and government to manage catastrophe risks. There are three pillars of the framework: (i) sustaining a strong and capable government; (ii) government enhancement of the market, neither supplanting nor retarding it; (iii) legalizing the relationship between government and market to prevent government from undermining well-functioning market operations. A catastrophe insurance market-enhancing framework may provide insights for developing catastrophe insurance in China and other transitional nations.

Originality

First, this paper analyzes China’s mechanism for managing catastrophic disaster risks and China’s approach which emphasizes government responsibilities will shed light on solving how to manage catastrophe risk efficiently and cover disaster losses fairly. Second, this paper starts a broader discussion about government stimulation of developing catastrophe insurance and this framework can stimulate attention to solve the universal dilemma.

Keywords

Citation

He, Q. (2016), "Climate Change, Catastrophe Risk, and Government Stimulation of the Insurance Market: A Study of Transitional China", The Political Economy of Chinese Finance (International Finance Review, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 295-340. https://doi.org/10.1108/S1569-376720160000017017

Publisher

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Emerald Group Publishing Limited

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