The Research On Government Involvement In The Market Of Special Risks Insurance

This research mainly focuses on government’s role in insurance industry as well as discussion about government’s function in economics and improvement of resource allocation efficiency and effectiveness. This paper pays more attention to post-disaster relief and positive effects in special risk insurance development from government’s involvement. This paper further analyzed this issue from public economics perspectives and regulatory economics perspectives. From the methodology side, this research constructed an analytical framework for government’s involvement in the special risk insurance. Literature review consists of some perspectives from China and western literatures. In addition, this paper also has some case study and comparison study. In depth, this paper fundamentally rethink China’s specific environment in regulatory and legal aspect, fiscal and taxation policy aspect, risk diversification aspect and mechanism aspect, proposed some government policy recommendations.First, the reasons why the word “special” to be used in special risk insurance, would be its specialty in terms of value, volatility and technology. During the period of China’s economic transition, there is great demand in special risk management and mitigation and ultimately turning to demand of special risk insurance. From the national strategic security, public benefits and welfare point of views, this paper made contributions to both theoretical and industry practice.In the literature review, this paper provides broad views over pure economics theories, insurance theories and previous studies on relevant areas. In pure economics side, this paper studied classical economics, Keynesian economics, institutional economics, public economics, and industrial economics. This study directs the research to focus on institutional economics and public economics analytical framework. In insurance theories side, this paper studied functions of insurance and insurability of risks. Furthermore, some case study literature about government involvement in insurance industry including compulsory motor insurance, agricultural insurance and catastrophic insurance areas were reviewed. To summarize perspectives from literatures, government involvement supporters claim that: First, government supporting policies enhance industrial competitive capabilities and innovation capabilities. Critics are: creating rent-seeking possibilities; resource misallocation; and, government dysfunction. Overall, possible solutions could be as follow. First, according to Premier Li Keqiang’s opinion, the economy could have a twin engines combination of government involvement and market invisible hand. This study proposes that, this is a combination of government dominance and market operation. Side effects of government intervention could be overcome by market operation.On the insurance theoretical and case study side, this paper studied Indonesian insurance market premium tariff reform. This case study gained following findings. First, in consideration of public interests protection and maintaining healthy industry, government should take intervention measures. Second, without a sufficient tested and proved measures, final results might far from expectation. Third, market demand and supply relationship would be main driven factor. Government should consider using market driven mechanism with government pilot method.From regulatory and legislation perspectives, this paper studied resource allocation theories, contemporary public management principles, regulatory economics, regulatory public interests theory, the theory of regulation capture, and asymmetric Information theory. Those studies provide a ground theoretical support to government regulatory and legislation intervention. From comparison study side, this paper compared China’s regulatory and legislation status quo with other countries as well as the development of China’s regulatory and legislation environment. Through this part of study, this paper proposed some opinions to policy making regarding hot issues like free trade zones and VAT reform.From the necessity and feasibility point of view, this research proposes that:First, due to extreme high single indemnity value and volatility of special risk insurance business, it would be inevitable that insurers would arrange international diversification. In China, majority of special risk reinsurance are controlled by London market. From national security consideration, this could be a threat.Second, from “One belt and one road” national strategy point of view, government supported insurance industry would provide a solid risk management backing.Third, the special risk industry generally involves public interests. From government’s fundamental social management role point of view, government should take risk mitigation measures including insurance subsidy.From feasibility side, this research proposes that:1. alternative approach to subsidize special risk industry.2. alternative subsidize approach would be able to evade WTO anti-subsidypolicies.3. multiplier effect and green box policy application.Based upon above research findings, this paper proposes the following recommendations:1. to proactively facilitate industry innovation through legislation and regulatoryframework refinement.2. to proactively facilitate industry development through fiscal and financialpolicies.3. government should build an insurance risk diversification mechanism toaddress market dysfunction issues….