Engineering models for catastrophe risk and their application to insurance
Weimin Dong
Risk Management Solutions, Inc. USA
Abstract: Internationally earthquake insurance, like all other
insurance (fire, auto), adopted actuarial approach in the past, which is, based
on historical loss experience to determine insurance rate. Due to the fact that
earthquake is a rare event with severe consequence, irrational determination of
premium rate and lack of understanding scale of potential loss led to many
insurance companies insolvent after Northridge earthquake in 1994. Along with
recent advances in earth science, computer science and engineering, computerized
loss estimation methodologies based on first principles have been developed to
the point that losses from destructive earthquakes can be quantified with
reasonable accuracy using scientific modeling techniques.
This paper intends to introduce how engineering models can assist to quantify
earthquake risk and how insurance industry can use this information to manage
their risk in the United States and abroad.
Keywords: risk; insurance; earthquake; engineering model
