Currently showing: Climate/natural disasters > Climate change

01 May 16 02:51

In the first week of April, I had the good opportunity to travel to the Booth School of Business at Chicago Uni., and attend the annual gathering of insurance economists, mostly from academia but few from insurance firms, the Fed and the World Bank.  The conference series is organized by the National Bureau of Economic Research (NBER).  A lot of bright people presented their most recent academic research – and I found many themes, which are directly relevant to todays' market most current practitioners' challenges.
First one was on optimal consolidation of insurance policies to global programs, due to mergers and internal restructuring. Theoretically the consolidation task is an accumulation of exposed retentions and limits to aggregate covers, while taking account of clashes, overlaps, correlations and increases in expected annual claims' frequencies to the ‘globalized’ program(s). I think the practitioners' challenge here is in accurate quantification of the effects of accumulation on the overall risk profile of the new (re)insurance structure, whether a single cover or a globalized account and line-of-business. We looked at some basic principles of such quantitative analysis in this paper:  ...
Second topic of high relevance was flood insurance.  Risk tolerance and preferences of the insureds were discussed, and their elasticities of demand to varying policy terms, conditions, complexities, and volumes of coverage. Undoubtedly, this is a big topic for industry. The financial modeling of all-flood policies has its challenges and in particular the ordering and inuring of settling chronological claims between main and dependent peril, and in the chronological exhaustion of annual aggregate terms. We look at the mechanical statistics of some such typical industry cases in context of local policies to global cover consolidation in this paper: ...
And lastly analysis and discussion of the (re)insurance gap were present literally in most presentations and conversations. Two types of protection gap were defined in my observation. Gap in insurance coverage for both medium and low income households - in both developed and developing markets is clearly present. But also such protection deficiency is identified for large high-revenue corporates, which choose to self-insure. These are two very distinct groups of (re)insureds. In pure analytics context, I find that modeling of insurer net and insured retained loss with high probabilistic and secondary uncertainty accuracy allows at least the typical insurer and the corporate insured - who has access to modeled loss via insurance brokers, to better evaluate their risk outcomes. In turn this should create a richer data environment for optimal policy coverage decisions. In terms of (re)insurance products, I commented that multi - year contracts have the potential to decrease inherent volatility of negative scenarios, and increase predictability of outcomes for both (re)insurers and (re)insureds

Category: Climate/natural disasters: Climate change, Disaster risk, Floods/storms

Location: Chicago, IL, United States


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