Reports Outline Risk Management Study Results from R. Figueiredo et al (A Probabilistic Paradigm for the Parametric Insurance of Natural Hazards)
By a
Financial support for this research came from Willis Research Network.
Our news journalists obtained a quote from the research, "However, this approach to catastrophe risk, based on making deterministic binary predictions of loss occurrence, is susceptible to basis risk (mismatch between payouts and realized losses). A more defensible approach is to issue probabilistic predictions of loss occurrence, which then allows uncertainty to be properly quantified, communicated, and evaluated. This study proposes a generic probabilistic framework for parametric trigger modeling based on logistic regression, and idealized modeling of potential damage given knowledge of a hazard variable. We also propose various novel methods for evaluating the quality and utility of such predictions as well as more traditional trigger indices. The methodology is demonstrated by application to flood-related disasters in
According to the news editors, the research concluded: "Using conceptual models of decisionmaker expenses, we also demonstrate that the system can provide considerable utility to involved parties, e.g., insured parties, insurers, and risk managers."
For more information on this research see: A Probabilistic Paradigm for the
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