Research On The Establishment Of Organizational Structure And Internal Governance Of Catastrophe Compensation Fund In China

In recent years, with the ever-increasing influence of great catastrophes on our country, above all the Wenchuan earthquake on May,2008, had caused immense casualties and property loss. The constant occurrence of the catastrophes exposed the huge defect of the country's catastrophe compensated mode, which is generally based on government relief. According to the practical experience of developed nations, the combination of government intervention and capital market is the best choice to establish catastrophe compensation. However, the development of insurance in our country is insufficiently immature, under these circumstances of the country, the paper raises the assumption to build catastrophe compensated fund accompanied by government. The primary coverage of the paper included the proposing of the new concept of Catastrophe Compensation Fund, construction of appropriate organization structure and inner governance mechanism, the realization of operating efficiency, the validity and actuality of internal governance. The research of organization structure in the enterprise managerialics focus on a self-contained enterprise or the loose combo of several enterprises. It divides the function of every participant and defines the affiliations in terms of the aim of economic interests, to realize the effective operation of the whole system. When it comes to the catastrophe compensated fund, a relatively special type of fund organization, which need to consider the public benefit and the commercial goal at the same time, it lacks the ready-made mode that can be used to research into the organization, what's more, the reference medias concerning how to set the structure from the internal governance's point of view are much less. But forced to catastrophic risk on a huge threat to our economy, This paper faced on this challenge and made a tentative search and study.The primary coverage of the paper is mainly consisted of 6 parts.The introduction seeks to present the reality that the compensation system of the country need urgently to be established, the summarized documents from both home and abroad about catastrophe risk management and inner fund control, the research approach of the paper, the logical organization of the article and possible deficiencies. The second chapter briefly analyzes the catastrophe risk. And then the general situation of catastrophe risk compensated mechanism of both home and abroad will be introduced, the limitations of the compensation mode based on relief of the country is to be analyzed. The analysis shows that the establishment of catastrophe compensated mode combining both government intervention and business capital is exactly the best way we search to disperse risk and achieve efficiency of compensation after disaster. Considering that there are still lots of problems of the insurance business in the country, for instance, the immature of the development of insurance,-the lag in technology of insurance product, lack of related professionals, ect. This paper posed the design of compensated system based on fund. The third chapter firstly puts forward the goals and requests of the establishment, during which the key issue is to combine public welfare and commerciality. It is actually the basic requirement of the construction. Currently there are 3 representative operating modes that can partially meet the need of the requirements, they are, catastrophe insurance fund, social security reserve funds of the country and securities investment funds. Each 3 mode has its advantage, but none of them can be directly put into use as organization form of the fund. Finally, attaching the analysis above, the operating mode and traits of the catastrophe compensated fund are provided. This mode is similar to securities investment funds, but due to the strict demanded public benefits, a special account is set up separately to resolve the participation of the government. This account is operated independently; the pattern resembles the social security reserve funds of our country.Due to the similarity of the to-be-established catastrophe compensated fund and securities investment funds, in chapter 4 we'll focus on 2 organizing mode of securities investment funds- the Corporate Type Fund and the Contractual Type Funds, and comparative analysis is proceeded from various aspects, Particularly the aspect of internal control mechanism. Through discuss the author believes that although the theoretical circles appealed extensively to build the corporate type of capital fund mode in the country, the independent director focus corporate type fund is not available based on the national conditions, the "independence" of independent director cannot be guaranteed. The existing Contractual Type Funds have many drawbacks, however, by means of niche targeting reforms and adjustments, the inner administration structure could still be optimized, sound development could be achieved. Afterwards, according to the distinctiveness of catastrophe compensated fund know from securities investment funds, the article proposed type of organization fit for the fund, it is parallel to the open Contractual ETF. Then, the specific organization structure of the fund is further raised. The biggest feature of the structure known from the traditional securities investment funds is the detailed partition of the rights and liabilities of the participants of the principal fund, furthermore, we discussed the structure of special fund composed of government funding which is close related to the catastrophe fund, and the structure of the Catastrophe Compensation Fund Council which is the core of the fund. The discourse of this part coordinates the part of inner control. When the organization is specifically designed, the problem of inner control has been taken into account.Chapter 5 is about the internal governance of the Catastrophe Compensation Fund. Catastrophe Compensation Fund has the characteristic that it has the similar organizational structure as the securities investment funds, so, when study its internal governance, we draw on the internal governance of securities investment funds. According to principal-agent theory and incomplete contract theory, we discussed principal-agent problem and the separation of residual control rights and residual claims issues existed in Catastrophe Compensation Fund, then raised the main contents of the Catastrophe Compensation Fund's internal governance as follows:incentive mechanism design and build the corresponding internal supervision system. In the part of the design of incentive mechanism, we carried out a detailed system design for Catastrophe Compensation Fund Council, fund managers and fund custodian to address the moral hazard under asymmetric information problem. Part in the establishment of internal supervision system, we introduced the internal supervision mechanism of Catastrophe Compensation Fund at different levels, including:how does fund share holders' meeting supervises fund Council, fund managers and custodian, how does fund Council supervises fund managers and custodian, how does fund custodian supervise fund managers. After that we presented a brief description of the Catastrophe Compensation Fund and catastrophe special account for the relationship between governance. This part of the study is mainly about the specific design of the system, it aimed to sound the operation of the Catastrophe Compensation Fund at the institutional level and make it more concrete, vivid and feasible. Part five is about the applicability of the Catastrophe Compensation Fund in China. This section is a summary of the previous parts. It summarized the applicability of this operation mode in our country through the analysis of its characteristics, advantages.I considered that China's catastrophe compensation system should both including government funds and social capital, thus I set up two separate accounts-Catastrophe Special Funds catastrophe and Catastrophe Compensation Fund, linked by the Catastrophe Compensation Fund Council. Catastrophe Special Funds are managed.by the fund Council which was established by the government according to the governmental goals. Catastrophe Compensation Fund was implemented full commercial operation, the operation is similar to the securities investment funds, and was sponsored by the Catastrophe Compensation Fund Council. For the choice of the organizational structure of the Catastrophe Compensation Fund, we should discuss around its internal governance issues, and the focus of this contradiction is about the applicability of the Corporate Type Fund and the Contractual Type Funds. For the Catastrophe Compensation Fund, the Contractual Type Funds is just to solve the problem about the connection of the government funds and social funds and how to make government involvement not to interfere too much by its loose form of organization with contracts. Government accesses to part of the fund equity share through the Catastrophe Special Fund accounts by providing the final damages compensations as inputs. Investors get part of the fund equity share as well as the right of receiving the post-catastrophe compensations by investing their own money and bear the risk of investment losses. Such system design implements the effective division of responsibilities and rights between investors and governments, and become the core of the internal governance of the Catastrophe Compensation Fund.The main innovations of this paper include:first, first proposed the idea of establishing a catastrophe compensation system, which was not rely on the catastrophe insurance industry in our country. Second, according to the requirements of establishment of catastrophe compensation system, this paper firstly proposed the Catastrophe Compensation Fund. Although this pattern does not exist in practice, it had established a suitable and specific organizational structure by combined similar types of funds, forms of organization in reality, and considered comprehensively about their respective advantages and disadvantages, as well as the applicability of the Catastrophe Compensation Fund. It also enhanced the feasibility of this mode through the appropriate institutional arrangements for internal governance. Third, it was different from the general ideas of organizational structure design in the corporate organization and management theory, put forward the organizational structure design method based on the internal governance and integrated the organizational structure design and internal governance effectively.In this article, the design process of the organizational structure and internal governance is the course of proofing the effectiveness and feasibility of the Catastrophe Compensation Fund in theory. This paper hopes to do some theory contributions for China's catastrophe compensation system through exploring the establishment of the Catastrophe Compensation Fund. At the same time it put forward the analytical framework and general idea of selecting the Fund's structure and the method of internal governance under the conditions of the specific fund's characteristics and tasks.