Climate Change and Financial Instruments to Cover Disasters: What Role for Insurance?

Abstract

Global climate change has caused many weather-related catastrophes in the world, and the losses have been increasing dramatically during past years. Various legal and business mechanisms and tools can be used to manage catastrophe risks and cover catastrophe losses, such as insurance, government subsidies, and risk sensitization. In theory, private insurance can be an efficient financial instrument to cover disasters. In practice, private insurance plays an important role indeed in developed countries such as the United States. This chapter further addresses the question: taking into account China’s transition economy and specific socialism system, what is the role of private insurance to cover disasters and how does it distribute catastrophe risks. Furthermore, I will propose that mandatory multi-year insurance may be a possible solution to be considered.