Insurance instruments for adaptation to climate change

Project description

Title: Insurance instruments for adaptation to climate change (weather insurance)
Commissioned by: German Federal Ministry for Environment, Nature Conservation, Building and Nuclear Safety (BMUB)
Country: PR China
Lead executing agency: China Insurance Regulatory Commission (CIRC), China Meteorological Administration (CMA)
Overall term: 2008 to 2011


In China, more than 330 million people work in agriculture, the large majority of them on small and very small farms. On average, farmers own only 0.4 hectares of cropland. As the main activity is rain-fed agriculture, these farmers are particularly vulnerable to the consequences of increased volatility in weather conditions as a result of climate change. According to official estimates, in the last 25 years approx. one-fifth of all farmland in China (an area the size of Germany) has been affected by extreme weather events that caused crop failure. In 2004 alone, droughts and floods caused crop failures valued at EUR 12 billion.

It is not uncommon for such natural disasters to destroy people's entire livelihood. As they do not have adequate insurance coverage, they face a financial emergency that affects the basic survival needs of entire families.


The insurance sector in the PR China offers households, farms and companies affordable weather insurance policies against the financial consequences of extreme weather conditions.

In cooperation with the China Meteorological Administration (CMA), the project implemented a detailed analysis of the climate situation in China and analysed the legal and general regulatory frameworks for index-based weather insurance policies. It then determined the weather vulnerabilities for production sectors such as agriculture, industry and services in the two pilot provinces and ascertained demand potential.

In cooperation with the CMA, reinsurers and insurance companies, it was then possible to evaluate historical weather data and continuously improve infrastructure. An index was drawn up for the situation to be insured. The project concentrates on product development, as well as on improving dialogue between the actors by means of workshops, seminars and conferences.

In the context of co-financing by the Asian Development Bank (ADB), the project advises the insurance supervision authorities on reforming general legal and regulatory conditions for microinsurance in China. The focus is first on a detailed analysis of the microinsurance sector and then on consulting services for the insurance supervisory body and other political decision-makers.

Results achieved so far

In the province Fuijan on the southeast coast of China, an insurance product against typhoon damage was developed. The largest insurance company in the country, China Life, was brought on board as a partner for the project. After intensive analysis of the energy and transport sector, the real estate market and small businesses and agriculture, it will offer appropriate typhoon insurance.

In the provinces Heilongjiang, Jilin und Liaoning in northeast China, the foundations for developing weather insurance have been laid. The northeast plays a significant role in Chinese agriculture because large amounts of maize, soy and rice are grown there. Just three days of sub-zero temperatures in May in this region could lead to over two-thirds of the harvest yield being lost. Weather insurance is being designed based on this important information.

Measures have also been implemented to make clear to the public the significance of private risk management. The goal is to increase knowledge of the usefulness of insurance products (insurance literacy). The uses and risks of insurance policies are explained to the policy holders. This leads to better understanding and greater acceptance of (weather) insurance, while protecting policy holders from entering into insurance contracts that are not to their advantage.