A novel strategy to determine the insurance and risk control plan for natural disaster risk management

Cheng Wu Chen, Chun Pin Tseng, Wen Ko Hsu, Wei Ling Chiang

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

Abstract

This study presents an extended framework for the analysis of economic effects of natural disaster risk management. It also attempts to define and evaluate the optimal insurance arrangements. A model, the economic utility constrained-maximization model, is proposed. The purpose of this study is to establish a strategy for determining an insurance and risk control plan in which consideration is given to balancing the economic effects (e. g., decrease in costs due to damage) by disaster mitigation. Furthermore, these values are compared with risk control actions for purposes of prioritization, to provide data to help evaluate the benefit of each risk control action. Disaster insurance policy premiums in contrast are based on actuarial data taken from situations in which risk control measures are not employed. This can make such contracts unfair to responsible enterprise managers who must take risk control measures. This represents an unfair aspect of insurance policies. Enterprise managers should be able to determine the optimum arrangement between natural disaster risk control and insurance given their budget limitations. The optimal strategies aim at the best applicability and balance between risk control and insurance capability for the enterprise manager. Risk control measures can generate several risk control options for enterprise managers. Premium discounts by insurers are given in this model.

Original languageEnglish
Pages (from-to)1391-1403
Number of pages13
JournalNatural Hazards
Volume64
Issue number2
DOIs
StatePublished - Oct 2012

Keywords

  • Constrained-maximization model
  • Economic utility
  • Natural disaster
  • Risk control

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