Mitigation of Climate Change Risks and Regulation by Insurance: A Feasible Proposal for China

Abstract

Climate change is one of the most fundamental challenges of our time. The extraordinary growth of greenhouse gas (“GHG”) emissions in China represents the single greatest obstacle to global climate change efforts in the coming decades. Meanwhile, China suffers from the adverse consequences of climate change. It has been recognized that two factors may increase climate change risks: (a) the increase in GHG emissions, which will increase the frequency and intensity of climate hazards; and (b) the increase of value-at-risk, such as the increased concentration of the world’s population and property in vulnerable areas. Therefore, mitigation of climate change risk involves not only human intervention to reduce GHG emissions but also prevention of potential losses caused by climate hazards. Among many solutions to risk mitigation, insurance has received increased attention due to its expertise in risk management and regulatory function in influencing policyholders’ behavior. This Article examines the ability of two types of insurance—liability insurance and catastrophe insurance—to regulate and thus help mitigate climate change risks, and considers the potential lessons for China.