Challenges and Progress in Building Flood Insurance Mechanisms

Challenges and Progress in Building a Flood Insurance Mechanism

Flood risk exhibits a complex dual nature of high-frequency, low-severity events and low-frequency, high-severity catastrophes, which traditional commercial insurance cannot cover alone. The core challenges lie in actuarial models lacking long-term historical data and the underdeveloped mechanism for dispersing catastrophe risks, resulting in difficulties in rate setting and limited market supply willingness.

The industry is exploring a "government-led, market-operated" model by establishing risk-sharing funds to alleviate underwriting pressure. Some regions are piloting index-based insurance products that use meteorological and hydrological data to trigger payouts, streamlining claims assessment and improving efficiency while providing a technical pathway for mechanism implementation.

• Enhance multi-source data collection to strengthen the foundation of risk pricing.
• Deepen the linkage between reinsurance and capital markets
• Strengthen public awareness of disaster prevention and loss reduction, and promote insurance education

While milestones have been reached, widespread adoption still faces challenges in refining legal frameworks and coordinating regional differences. Future efforts must continue to optimize policy incentives and market access rules. Specific coverage and compensation standards are subject to the terms of the insurance contract.