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

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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.

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Acknowledgments

The authors would like to thank the National Science Council of the Republic of China, Taiwan, for their financial support of this research under Contract Nos. NSC 100-2221-E-022-013-MY2, NSC 100-2628-E-022-002-MY2.

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Authors and Affiliations

  1. Institute of Maritime Information and Technology, National Kaohsiung Marine University, Kaohsiung, 80543, Taiwan

    Cheng-Wu Chen

  2. Global Earth Observation and Data Analysis Center, National Cheng Kung University, Tainan, 701, Taiwan, ROC

    Cheng-Wu Chen

  3. Chung Shan Institute of Science and Technology, Armaments Bureau, Taoyuan, Taiwan

    Chun-Pin Tseng

  4. Research Center for Hazard Mitigation and Prevention, National Central University, Jhung-li, Taoyuan, Taiwan

    Wen-Ko Hsu

  5. Department of Civil Engineering, National Central University, Jhung-li, Taoyuan, Taiwan, ROC

    Wei-Ling Chiang

Authors
  1. Cheng-Wu Chen
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  2. Chun-Pin Tseng
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  3. Wen-Ko Hsu
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  4. Wei-Ling Chiang
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Correspondence to Cheng-Wu Chen.

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Chen, CW., Tseng, CP., Hsu, WK. et al. A novel strategy to determine the insurance and risk control plan for natural disaster risk management. Nat Hazards 64, 1391–1403 (2012). https://doi.org/10.1007/s11069-012-0305-3

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  • DOI: https://doi.org/10.1007/s11069-012-0305-3

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