Swiss Re has entered into an agreement as sole reinsurer to protect seven prefectures of Guangdong province, China, in partnership with local insurers, led by the People’s Insurance Company of China (PICC) in 2016.
The pilot program offers insurance cover for a maximum value of US$350 million, and is expected to be adjusted and renewed annually. It uses rainfall and tropical cyclone wind speed indices to trigger policy claims, ensuring fast payout, Swiss Re said in a statement.
The pilot helps protect China’s major economic hub against the financial impacts of natural disaster risk, Swiss Re said, explaining that Guangdong, which is highly exposed to natural disasters, is responsible for over US$1 trillion of China’s GDP.
The first payout was already triggered after super Typhoon Haima made landfall in the city Shanwei on Oct. 21, 2016. The program will be rolled out in a total 10 prefectures by the end of this year.
Compared with traditional re/insurance, the speed of parametric insurance payouts will allow governments to access ready capital for managing emergencies at the times when it is most needed, Swiss Re added.
This is the second pilot program to protect the balance sheets of provincial governments in China against the economic impacts of major disasters. It complements a reinsurance protection scheme set up for Heilongjiang province, announced on 3 August 2016 this year, which focuses primarily on poor rural communities.
Swiss Re said it developed both programs in response to the Chinese Central Government’s imperative to build a Disaster Insurance System. The schemes could serve as a model to insure other provinces in the country.
Martyn Parker, chairman of Swiss Re Global Partnerships, said: “Guangdong is an important industrial production center and highly exposed to natural disasters, particularly typhoon and flood. A major disaster is not just devastating for the lives and livelihoods of local people, but is also likely to affect the longer-term economy of the region. Guangdong’s move to put measures in place before disasters strike has already proven its worth, when super-typhoon Haima triggered a claim. The city of Shanwei has received a payout from the insurance company less than a week after the typhoon struck.”
Source: Swiss Re
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