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The economic damage function of the integrated assessment model (IAM) is used to quantify the economic loss caused by climate change, and it is quite important for coupling the economic system and natural system in a model. However, there are many shortcomings of the damage function in the current IAM. The most important shortcoming is that the only climatic factor in the damage function is the global annual mean temperature rise, which would result in the estimation deviating from reality. We improved the damage function by introducing extreme climate change events. Additionally, the improved damage function is applicable to the regional characteristics by using regional climate change data. The extreme climate event information is extracted with the categories of the disasters. The damage function is set up by using the Ordinary Least Square (OLS) method based on the climate data and economic loss data. The results show that the improved IAM damage function can better reflect the actual climate change economic loss in China, making it more reasonable. This paper provides an important method and technical solution for the realization of an effective connection between the disaster damage function of the integrated assessment model and the climate elements of the Earth system model.