Reinsurance News

China safeguards its green energy revolution with index insurance: Swiss Re

28th June 2017 - Author: Staff Writer

Along with wind and sun, China has harnessed the power of insurance to catalyse its clean energy revolution, after having successfully pioneered government led re/insurance partnerships to safe-guard regional development with an index insurance scheme that makes a post-disaster payout to local government.

Wind farm image via the Microsoft blogChina is the world’s largest producer of renewable energy electricity production, with over twice the generation of the United States.

To further advance its green energy revolution and continue to grow its renewables market, China needs to show investors that it can protect their assets against the volatility of weather-based production and revenue loss.

Last year, seven Chinese government ministries noted the need for insurance to protect against climate related events in their guidelines for establishing an economy that supports environmental protection and clean energy.

This is where re/insurers come into the picture, with index-triggered solutions ensuring prompt indemnity payments and therefore predictable turnover that stabilizes the value of shareholders’ investments.

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The insurance model is based on transparent data calculations of actual wind speed or amounts of solar irradiation per year from third party providers such as NASA.

The promise of a steady cash-flow irrespective of the weather will provide the solid foundation needed for the renewable sector’s further development and growth in line with the government’s 12th Five-Year Plan for developing second – and third-tier cities and green and efficient energy.

Swiss Re said China is also shoring up its infrastructure development, creating disaster resilience through complementing the traditional insurance covers during construction and operation with additional index-triggered protection, similar to those in place for the regions of Heilongjiang and Guangdong.

“We are hoping more provinces in China, and other governments around the world, will watch these examples and consider how similar approaches could become a useful resilience tool in their own striving to meet the Paris agreement,” commented Swiss Re.

In October last year, Swiss Re sealed an agreement with the Chinese province of Guangdong to be the sole reinsurer for a parametric disaster insurance pilot providing $350m of protection against tropical cyclone and excess rainfall for seven prefectures in the region.

The first payout under the new Guangdong parametric disaster insurance cover has already been triggered as well, after super typhoon Haima struck the city of Shanwei.

The payout was made in less than a week, further demonstrating the key role that parametric triggers can play in insurance or reinsurance arrangements.

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