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Environmental risk solutions in China

Can compulsory liability insurance reduce environmental risk?

Environmental pollution

In the past, with China's extraordinary economic growth, some man-made pollution problems appeared in the face of the nation. For example, some private chemical enterprises which only pursued profits did not care about environmental protection and caused some environmental pollution incidents that aroused social concern.

The Chinese Government is alert to this issue and over the past five years has devoted significant energy and resource to ecological conservation. The nation has become more purposeful and active in pursuing green development and there has been a clear shift away from the tendency to neglect ecological and environmental protection. Whilst more needs to be done to resolve China’s water pollution problem, efforts to conserve resources have seen some encouraging progress, for example: the intensity of energy and resource consumption has reduced; major ecological conservation and restoration projects mean forest coverage has increased; and ecological and environmental governance has been significantly strengthened. China has become an important participant and contributor in the global endeavour for ‘ecological civilization’ that ensures harmony between humans and nature.

Case study by Mr Xiaoxuan (Sherwin) Li, FIA

Mr LiEnvironmental risk analysis is a frontier topic in the field of green finance, which is also the core issue of the G20 Green Finance Study Group (GFSG). The quantitative analysis of environmental risk and its pricing strategy are very important problems in the process of building an effective and sustainable green financial system.

The China Society for Finance and Banking is a member of the G20 Green Finance Study Group and it is promoting a ‘greening’ of the financial system by financing for sustainable growth and development. The Insurance Society of China is also focusing on the promotion of sustainable development and green insurance. At the beginning of 2017, these two organisations came together to undertake a quantitative analysis of environmental risk for the finance and insurance industry in China. In the project, the quantitative analysis of environmental risk for the insurance industry was led by the appointed actuary of China Re, Mr.Xiaoxuan (Sherwin) Li, FIA, and his actuarial team.

The project’s initial findings are that the externality of environmental risk is being borne by society, rather than the industries which cause and reap the financial rewards from behaviours that increase environmental risk. In other words the companies that are causing environmental pollution though their businesses practices are profiting because they do not have to internalise these costs themselves – instead the Chinese Government is having to raise revenue to clean up the environment in China. 

In the project, actuaries involved are using actuarial methodologies and catastrophe modelling methodologies to evaluate environmental risk. The ultimate aim is that this will lead to businesses having to internalise the cost of any environmental pollution caused by their operations. The models used by actuaries means they are able to measure an entity’s environmental risk and place a cost on that risk, depending on the potential probabilities and severities of environmental risk caused by the entity. This cost would then be recouped from entities via an insurance premium based on its behaviour related to taking environmental risk. This mechanism ensures that the costs of environmental pollution fall on the entity causing / benefitting from the pollution, rather than the society.

In June 2017, the Ministry of Environmental Protection of China and China Insurance Regulatory Commission released the exposure draft of the administrative measures for compulsory liability insurance of environmental pollution. With this mechanism, China hopes that its society and economy will continue on the path towards healthy and sustainable development.

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Events calendar

  • The Growth Mindset for Actuaries

    13 October 2021 - 8 December 2021

    Fully booked.

    This practical course is aimed at actuaries at any stage of their career who want to develop their own growth mindset and apply it to their work setting and personal or professional lifelong learning. The content of the course builds on the lecture given by Dr Helen Wright on Growth Mindset as part of the President’s 2021 Lecture series, and will be delivered over a period of 2 months, from mid-October to early December.

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    The importance of biodiversity for finance, business and policy is being increasingly recognised. While many studies highlight the overall economic impact that biodiversity loss could have, it is much more difficult to quantify and understand the particular impact that is may have on individual businesses or communities. The management and measurement of these risks is a field where actuaries are well placed to contribute.

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    The climate crisis and the degradation of our planet will affect societies everywhere. How we address these threats will require solutions that transcend borders. As a global profession, the actuarial community is well-placed to consider and propose effective risk management solutions to help manage the climate crisis.

  • GIRO 2021 Webinar Series

    Online
    8 November 2021 - 19 November 2021
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    Join leading experts to discuss key issues, emerging ideas and new research across the general insurance sector.

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    This is a free webinar with an expert panel providing their views on the ongoing IFoA consultation for proposals regarding changes to the regulatory framework on climate change and sustainability.

    The regulatory consultation sets out, for feedback some proposed approaches that the IFoA are considering in relation to charter commitments under the UK’s Green Finance Education Charter (GFEC) and the regulatory framework, including the Actuaries’ Code.

  • Life 2021 Webinar Series

    Online
    22 November 2021 - 26 November 2021
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    Join leading experts to discuss key issues, emerging ideas, and new research across the Life insurance sector.

  • Spaces available

    The role of actuaries within the health sector varies considerably from one country to another, due to differences in the local evolution of health systems and the funding models for health services. 

  • Spaces available

    Content will be aimed at all actuaries looking to understand the issues surrounding mental health in insurance and in particular those looking to ensure products and processes widen access for, and are most useful to, those experiencing periods of poor mental health.
     

  • The Many Faces of Bias

    2 December 2021

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    This webinar looks at the many types of biases, both conscious and unconscious and the impacts they can have in the workplace.  Raising our own awareness and understanding of the issues can help us avoid the pitfalls of unconscious bias in particular.  We’ve all heard the phrase ‘office banter’ but are we sure that’s how those on the receiving end perceive it and is it ok to go along with it?