How does index-based insurance support marine disaster risk reduction in China? Evolution, challenges and policy responses

Coastal areas in China are particularly suffering from marine disasters, as they are attacked by marine disasters frequently, suddenly, catastrophically, leading to massive economic losses, even deaths. It is, therefore, necessary and urgent to build and reinforce a robust risk reduction arrangement for marine disasters in China. Marine disaster index insurance (MDII) has been recognized as an excellent emerging instrument for marine disaster risk management in coastal areas due to its dual advantages of avoiding moral hazard and adverse selection, besides immediate compensation. However, a clear understanding of its evolution, experience, and characteristics of MDII in China is remaining deficient. Taking the review and analysis of policy, this paper traces the history of evolution and investigates China's MDII pilots since 2013. It was found that China has made great progress in piloting MDII with the support of government policies in the past decade, which can be summarized in three stages: germination stage, initial development stage, and comprehensive development stage. However, some deficiencies and challenges have been identified from the investigation, including limited coverage, insufficient demand, inadequate supply, and imperfect subsidy policies. This paper proposes the following improvement strategies: improve the market ecosystem and regulatory system for MDII, enhance the ability of MDII insurers to deal with immediate huge claims, diversify the channels and forms of subsidy policies for MDII, raise public awareness of using MDII to manage marine disaster risks, and design scientific MDII products.