The Trigger Index Calculation On The Index-based Flood Insurance In China

The index-based insurance is a hot research in recent years in the internationalcommunity. Because of the index-based insurance have many advantages such asreduction of moral hazard and adverse selection, it become an effective way to spreadcatastrophic risk. From the international experience, the index-based insurance isindeed helpful for government to transfer catastrophic risk. Currently, the Index-basedweather insurance have been successful piloted and applied in many countries.Thisarticle will introduce the idea of this new insurance into the flood insurance in China,describes the basic situation of the index-based flood insurance, and focus on thecalculation of the trigger indexes.Around this theme, this article had three aspects. First of all, it expounded theorigin and development of the index-based insurance. Secondly, it introduced themature process of how to design a trigger mechanism in the foreign countries,andprovide guidance and basis for this article. Finally, taked Lilin county in HunanProvince as a pilot, specifically addressed the index calculation formula of ourindex-based flood insurance. Then assumed there is a flood insurance program,simulated15years of the program’s operations with the use of the Monte Carlosimulation method. Analysed the probability of bankruptcy with different combinationof trigger point and limit point. Pointed out the relationship among the triggerpoint,limit point and the probability of bankruptcy, thus chose the suitable triggerconditions.