Environmental Pollution Liability Insurance in China: In Need of Strong Government Backing

Yan Feng, Arthur P. J. Mol, Yonglong Lu, Guizhen He, C. S. A. van Koppen

Environmental pollution liability insurance was officially introduced in China only in 2006, as part of new market-based approaches for managing environmental risks. By 2012, trial applications of pollution insurance had been launched in 14 provinces and cities. More than ten insurance companies have entered the pollution insurance market with their own products and contracts. Companies in environmentally sensitive sectors and high-risk industries bought pollution insurance, and a few successful compensation cases have been reported. Still, pollution insurance faces a number of challenges in China. The absence of a national law weakens the legal basis of pollution insurance, and poor technical support stagnates further implementation. Moreover, current pollution insurance products have limited risk coverage, high premium rates, and low loss ratios, which make them fairly unattractive to polluters. Meanwhile, low awareness of environmental and social liabilities leads to limited demand for pollution insurance products by industrial companies. Hence, the pollution insurance market is not yet flourishing in China. To improve this situation, this economic instrument needs stronger backing by the Chinese state.