Model for Determining Insurance Premiums Taking into Account the Rate of Economic Growth and Cross-Subsidies in Providing Natural Disaster Management Funds in Indonesia

Kalfin (), Sukono, Sudradjat Supian and Mustafa Mamat
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Kalfin: Doctoral Program of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang 45363, Indonesia
Sukono: Department of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang 45363, Indonesia
Sudradjat Supian: Department of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang 45363, Indonesia
Mustafa Mamat: Faculty of Informatics and Computing, Universiti Sultan Zainal Abidin, Kuala Terengganu 21300, Malaysia

Sustainability, 2023, vol. 15, issue 24, 1-15

Abstract: Natural disasters are increasing due to climate change, which is causing economic losses for countries affected by them. Disaster management funds need to be provided, including through purchasing insurance. Determining natural disaster insurance premiums needs to involve consideration of the geographical conditions of the country. The aim of this research was to develop a model for determining natural disaster insurance premiums using the jumping processes method and a cross-subsidy system. The model takes into account the level of economic growth and the natural disaster potential index. The data analyzed relate to cases of natural disasters and losses that occurred in each province in Indonesia. From the results of the analysis, it was found that through a cross-subsidy system, the principle of mutual cooperation can be applied in managing natural disasters. Regions with a high level of economic growth and a low natural disaster potential index need to provide subsidies to regions with a low economic growth rate and a high natural disaster potential index. It was also found that the cost of insurance premiums was influenced by the size of losses and the frequency of natural disasters in the province. The greater the potential for disasters and economic losses experienced by a province due to disasters, the greater the premium burden that must be borne, and vice versa. Based on these conditions, insurance premiums vary in each province in Indonesia. It is hoped that the results of this research can provide a reference for the government in determining policies for providing funds for natural disaster management using a cross-subsidy system. In addition, this research can provide a reference for insurance companies in determining natural disaster insurance premiums in Indonesia.

Keywords: natural disasters; risk; premiums; insurance; cross-subsidy system (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
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