Risk Management Solutions (RMS) have announced completion of a pilot project looking at the viability of bringing a micro-insurance scheme for earthquake risk to rural China. RMS say that with the appropriate support it is now viable to bring a product to market which could help protect low income households against major earthquakes through a framework of risk sharing and risk transfer involving governments, insurers and reinsurers.
RMS’ pilot project involved getting to a point where they had complete risk quantification and a conceptual design of a product that was viable and affordable. The results show that for a very low premium per household total premium income could be enough to cover the estimated risks and operational costs of the scheme.
RMS proposes a three layered risk-sharing program with primary insurance covering the first layer of risk, reinsurance covering the second and government help only kicking in for the third layer of risk. We imagine that any reinsurers who start getting involved in deals like this would be looking to hedge their own risks through the use of cat bonds.
No details of how the layers of cover are triggered is disclosed, if anyone from RMS would like to comment we’d be very interested to hear more.