Flood Catastrophe Model for Designing Optimal Flood Insurance Program: Estimating Location-Specific Premiums in the Netherlands
As flood risks grow worldwide, a well-designed insurance program engaging various stakeholders becomes a vital instrument in flood risk management. The main challenge concerns the applicability of standard approaches for calculating insurance premiums of rare catastrophic losses. This article focuses on the design of a flood-loss-sharing program involving private insurance based on location-specific exposures. The analysis is guided by a developed integrated catastrophe risk management (ICRM) model consisting of a GIS-based flood model and a stochastic optimization procedure with respect to lo... Mehr ...
Verfasser: | |
---|---|
Dokumenttyp: | Artikel |
Erscheinungsdatum: | 2016 |
Verlag/Hrsg.: |
Wiley-Blackwell
|
Sprache: | Englisch |
Permalink: | https://search.fid-benelux.de/Record/base-26808121 |
Datenquelle: | BASE; Originalkatalog |
Powered By: | BASE |
Link(s) : | http://pure.iiasa.ac.at/id/eprint/12333/ |
As flood risks grow worldwide, a well-designed insurance program engaging various stakeholders becomes a vital instrument in flood risk management. The main challenge concerns the applicability of standard approaches for calculating insurance premiums of rare catastrophic losses. This article focuses on the design of a flood-loss-sharing program involving private insurance based on location-specific exposures. The analysis is guided by a developed integrated catastrophe risk management (ICRM) model consisting of a GIS-based flood model and a stochastic optimization procedure with respect to location-specific risk exposures. To achieve the stability and robustness of the program towards floods with various recurrences, the ICRM uses stochastic optimization procedure, which relies on quantile-related risk functions of a systemic insolvency involving overpayments and underpayments of the stakeholders. Two alternative ways of calculating insurance premiums are compared: the robust derived with the ICRM and the traditional average annual loss approach. The applicability of the proposed model is illustrated in a case study of a Rotterdam area outside the main flood protection system in the Netherlands. Our numerical experiments demonstrate essential advantages of the robust premiums, namely, that they: (1) guarantee the program's solvency under all relevant flood scenarios rather than one average event; (2) establish a tradeoff between the security of the program and the welfare of locations; and (3) decrease the need for other risk transfer and risk reduction measures.