Catastrophe, Climate Change and Terrorism Risks in Insurance

Catastrophe, Climate Change and Terrorism Risks in Insurance

Introduction

Over the last few years, there have been witnessed disasters of large magnitude. Some disasters are intentionally made, such as September 11 USA terrorist attack, and others are accidental like 2001 AZF Factory explosion in France. Others emanated from natural hazards like severe floods as witnessed during 2002 summer in Europe, and other typhoons, earthquakes, and hurricanes witnessed in different parts around the world, as hurricanes experienced in the 2004 summer-fall in Asia (Ericson, & Doyle, 2004). The frequency of these disasters, as well as the severity of the losses incurred, has increased significantly posing a serious challenge to the insurance market structure, demand, and supply.

Catastrophe and Climate Change Risks

The severity of catastrophes and a high level of climatic change have altered the demand, supply and structure of the insurance industry, with insurance companies bearing the blunt and changing their insurance policies. The private insurance market may not be in a position to respond to respond to all issues, which are raised by the contemporary catastrophic exposures. The main challenge is posed by lack of the unpredictability nature of the risks. For an insurance company to be able to indemnify the insured and function properly, it must have the ability to assess the risks undertaken with an efficient level of precision.

In order to measures, the magnitude of the risk insured in the natural catastrophes and changes in the climatic conditions, various computer-based modeling methods have been developed, in the past decades. These modeling techniques provide the insurance companies with more reliable risk exposure assessing tools. In spite of this development, there are many uncertainties pegged in climate change, which remains a big challenge. The history of a climatic change is no longer valid as a benchmark for the risk. This necessitates the change of risk assessing and predicting models that are used.

According to research carried in USA………………

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