Workshop Explores New Insurance Instruments to Strengthen PRC’s Flood Resilience

Workshop Explores New Insurance Instruments to Strengthen PRC’s Flood Resilience

News Release | 12 May 2021

BEIJING, PEOPLE’S REPUBLIC OF CHINA (12 May 2021) — Different financial instruments to increase disaster resilience in the People’s Republic of China (PRC) were the focus of discussions at a workshop today in Beijing.

The workshop on Enhancing Financial Resilience to Disasters was hosted by the Asian Development Bank (ADB), jointly with the Ministry of Finance and National Development and Reform Commission of the PRC on a day that also marks the country’s National Day of Disaster Prevention and Reduction. It brought together experts to disseminate international best practices on disaster risk financing and explore opportunities for innovative operations in the PRC. Participants discussed the case for a possible parametric insurance facility to deal with flood risks, specifically in the Yangtze River basin.

“A parametric insurance instrument would provide governments with financial resources to respond to flooding disasters and complement ongoing flood prevention and reduction measures in the Yangtze River basin,” said ADB Director General for East Asia James Lynch. “This model could then be replicated in and beyond the PRC to benefit other ADB developing member countries, strengthening knowledge sharing between the PRC and these countries.”

Floods are among the most challenging disaster risks in the PRC, given the economy’s great dependence on river systems. For example, the direct economic loss to the PRC due to heavy rains and floods in July 2020 in the Yangtze River and Huai River basins was about CNY132.2 billion ($22 billion), according to data from the Ministry of Emergency Management. 

Innovative financing instruments help to reduce public financial exposure to such risks, and they increase the capacity of governments to respond to the economic and social impacts of natural disasters, participants heard. Parametric insurance is one such financing instrument that triggers a near-immediate lump sum payout against a pre-defined disaster of specified intensity. This instrument is increasingly employed as an added approach to augment and fill gaps in existing risk management systems. 

Improving disaster risk financing is critical to enhancing disaster resilience, which is a key priority in the PRC’s 14th Five-Year Plan (FYP). The FYP calls for the PRC to combat climate change to achieve high-quality development, and to develop disaster risk insurance to strengthen the national emergency response management systems. ADB’s new country partnership strategy for the PRC, 2021–2025 focuses on joint efforts to address climate change, consistent with the FYP.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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