Parametric Insurance—A Possible and Necessary Solution to Insure the Earthquake Risk of Romania

Nicoleta Radu and Felicia Alexandru
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Nicoleta Radu: Doctoral School of Finance, Faculty of Finance and Banking, Bucharest University of Economic Studies, 010374 Bucharest, Romania
Felicia Alexandru: Department of Finance, Faculty of Finance and Banking, Bucharest University of Economic Studies, 010374 Bucharest, Romania

Risks, 2022, vol. 10, issue 3, 1-16

Abstract: The rapid growth over recent decades of the impact of natural disasters on economies, especially in vulnerable areas, urges stakeholders to promote innovative solutions involving risk transfers that account for the new risk exposures. These proposed solutions are designed to optimize and expedite the indemnification process, which can ultimately be beneficial for both policyholders and insurers alike. This article explores the possibility of supplementing the current Romanian dwelling insurance protection scheme with a parametric mechanism. To determine the triggering parameter of the insurance pay-out, the authors consider various hazard scenarios developed based on historical events. This paper focuses on Probable Maximum Loss (PML) determination computed for events with epicenters in the Vrancea (a region and a mountain in the Carpathians) seismic area. This area is the most exposed in Romania to earthquakes, and it includes the capital, Bucharest, which is the urban area with the highest population concentration and, consequently, the highest exposure to the discussed risks.

Keywords: parametric insurance; natural disasters; earthquake; home insurance (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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