Dynamic modeling of public and private decision-making for hurricane risk management including insurance, acquisition, and mitigation policy

ECU Author/Contributor (non-ECU co-authors, if there are any, appear on document)

Rachel Davidson (Creator)

Cen Guo (Creator)

Jamie Kruse (Creator)

Meghan Millea (Creator)

Linda Nozick (Creator)

Joseph Trainor (Creator)

Institution

East Carolina University (ECU )

Web Site: http://www.ecu.edu/lib/

Abstract: We develop a computational framework for the stochastic and dynamic modeling of regional natural catastrophe losses with an insurance industry to support government decision-making for hurricane risk management. The analysis captures the temporal changes in the building inventory due to the acquisition (buyouts) of high-risk properties and the vulnerability of the building stock due to retrofit mitigation decisions. The system is comprised of a set of interacting models to (1) simulate hazard events\; (2) estimate regional hurricane-induced losses from each hazard event based on an evolving building inventory\; (3) capture acquisition offer acceptance, retrofit implementation, and insurance purchase behaviors of homeowners\; and (4) represent an insurance market sensitive to demand with strategically interrelated primary insurers. This framework is linked to a simulation-optimization model to optimize decision-making by a government entity whose objective is to minimize region-wide hurricane losses. We examine the effect of different policies on homeowner mitigation, insurance take-up rate, insurer profit, and solvency in a case study using data for eastern North Carolina. Our findings indicate that an approach that coordinates insurance, retrofits, and acquisition of high-risk properties effectively reduces total (uninsured and insured) losses.

Additional Information

Publication

Other

Guo, C., Nozick, L., Kruse, J., Millea, M., Davidson, R., &Trainor, J. (2022). Dynamic modeling of public and private decision-making forhurricane risk management including insurance, acquisition, and mitigation policy.RiskManagement and Insurance Review, 25, 173–199.https://doi.org/10.1111/rmir.12215GUOET AL.|199

Language: English

Date: 2023

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