The Research Of Index Designation In China’s Index-based Flood Insurance

The flood disaster is a great natural disaster on human life, property, safety. China’s water system is developed, since the establishment of New China, especially since the1990s, the magnitude of the flood disaster loss is more and more serious. Flood insurance insuring household disaster recovery not only provide an effective help to reduce post-disaster relief and burden, can also play a special role in disaster reduction. Flood insurance has been accepted by a growing number of countries, for the attention of the index-based flood insurance is getting higher and higher in the area of flood insurance studies, because index-based flood insurance has more advantages than many traditional compensation-type flood insurance.The compensation-type flood insurance is paid and carried out according to the actual loss amount of the approved insurance subject, but for catastrophe risk, this pattern has the difficulty of damage survey, increase the operating costs of the insurance company. The index-based flood insurance claims based on some objective, observable variables, requires these variables are highly correlated with flood loss. Based on the relationship between these variables and flood loss, index-based flood insurance will construct the index model, compensation made or not, is all determined by trigger or not. Damage survey after the flood disaster is not needed, just by the index model to calculate the index value, if the index value reached the trigger level, compensation is made. The paper is to investigate China’s index-based flood insurance, and on this basis, to design the index model. Because of the index-based flood insurance is still in its infancy, the results of this research will have a certain significance on the further development of China’s flood insurance.This paper first introduces the index insurance related theory and the model and the specific content of the two index insurance products, and then combined with the flood hazard factors and descriptive indicators, construct index model of China’s index-based flood insurance. The paper selects Hunan province Linli city as empirical object, selects the three flood disaster hazard:precipitation, floods monthly average temperature, maximum flow. Then uses main components nonlinear regression analysis to establish the specific index model of Linli flood index insurance. Using Monte Carlo simulation method to generate a large number of flood hazard random events. Finally, using VaR method to determine the trigger value and exhaustion value of level1to level5.