Valuation Study

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Value of Disaster Relief

Attributes

Medium: Animals, Plants and/or Others

Country: China

Analytical Framework(s): Institutional Analysis

Study Date: 2010

Publication Date: 2013

Major Result(s)

Category Resource/Environmental Good CNY, per resident
(2010)
with recent catastrophic experience marginal WTP for government natural disaster insurance, high risk perception1 41.71
with recent catastrophic experience marginal WTP for government-backed commercial natural disaster insurance, high risk perception 28.57
with recent catastrophic experience marginal WTP for large-scale commercial natural disaster insurance, high risk perception 23.43
with recent catastrophic experience marginal WTP for deductible natural disaster insurance, high risk perception -2.23
with no recent catastrophic experience marginal WTP for government natural disaster insurance, high risk perception 17.18
with no recent catastrophic experience marginal WTP for government-backed commercial natural disaster insurance, high risk perception 11.76
with no recent catastrophic experience marginal WTP for large-scale commercial natural disaster insurance, high risk perception 9.65
with no recent catastrophic experience marginal WTP for deductible natural disaster insurance, high risk perception -0.92

Study Note: The results of this study suggest that neither public nor private approach presents an adequate solution to the challenge of financing natural disaster losses in China. Instead, government-business collaboration may provide a valuable alternative.

Study Details

Reference: Haitao Yin. 2013. Insurance Approach for Financing Extreme Climate Event Losses in China: A Status Analysis. EEPSEA Research Report, No. 2013-RR12.

Summary: This study investigated how China's insurance industry (as suppliers) and Chinese people (as consumers) view natural disaster insurance. It was found that insurance companies hesitate to offer insurance policy against natural disaster because of institutional barriers, low demand from consumers and the ambiguity and uncertainties associated with natural disasters. On the demand side, it was found that people have a low demand for insurance because of three major reasons: (1) the perception of "it won't happen to me"; (2) budgetary constraints; and (3) a deep distrust of the insurance industry. It was also found that people tend to avoid insurance offered by small-scale insurance companies and strongly favor insurance provided by government. This suggests that the establishment of natural disaster insurance should be initiated by government in China. It was also found that a person's WTP for natural disaster insurance would significantly increase if he/she had a catastrophic experience before and his/her risk perception was high.

Site Characteristics: Cangnan County in Zhejiang Province was selected as the site for this research because it is frequently hit by typhoons. From 2005 to 2009 an average of two major typhoons struck Cangnan County every year. In 2006, Typhoon SangMei wiped out 5% of all dwellings in Cangnan. The most recent typhoon, Typhoon Morakot, flooded the county again in 2009, causing CNY 16 billion direct economic losses. This study focuses on Lingxi Town in Cangnan County for two reasons. First, FGDs indicate that Lingxi has characteristics representative of the whole county. Second, Lingxi is the most accessible town in Cangnan County. Conducting interviews in other towns would have been both expensive and time-consuming.

Comments: This research first examined the existing public system of disaster relief and recovery, including both direct government subsidy and public insurance systems through extensive documentary research, focus group discussions and face-to-face interviews. A field survey, which includes a choice-experiment of insurance selection, was used to gather data for the demand side analysis. The authors further mentioned that although the sampling procedure used in this study was not a random sampling procedure in a strictly statistical sense, it was the most feasible approach for this research. In the pilot test, it was found that the most local residential committees refused to provide a full list of households in its jurisdiction, making random sampling impossible.

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