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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

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Copyright 2009 IEM. Journal of Earthquake Engineering and Engineering Vibration. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as described below, without written permission from the Publisher. Copying of articles is not permitted except for personal and internal use, to the extent permitted by national copyright law, or under the terms of a license issued by the National Reproduction Rights Organization of China.