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Research Paper | Business Administration | India | Volume 13 Issue 6, June 2024 | Popularity: 5.7 / 10

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Unlocking India's Natural Disaster (Flood and Cyclone): Challenges in Terms of Indirect Losses and Probability of Reoccurrence

Rajani Kant Awasthi, Dr. Atul Sangal

Abstract: Due to climate change, the occurrence of natural disasters has become quite unpredictable, as the natural disasters affect human life, infrastructure, economic activities etc. The severity of the damage depends on the population's disaster preparedness and on the existing infrastructure. The tangible losses are computed after disaster events, however, a significant loss in terms of indirect losses which affect the over-all economy of a country are quite significant. Keeping in view the study aims to carry out the probabilistic modelling to undermine underwriting and risk selection, loss mitigation strategies, allocation of cost of capital, cost of reinsurance, reinsurance and risk transfer analysis, enterprise risk management. In this study, The Occurrence Exceedance Probability (OEP) and the Aggregate Exceedance Probability (AEP) are two primary metrics used in catastrophe modeling that give an insurer immediate feedback on the financial nature of a disaster. The results indicate that the exceedance probability of occurring bigger losses is quite high in comparison to smaller losses, at the same time the return period for the bigger losses is quite high in comparison to smaller losses. Also, the severity has been found ranging from 20-36% for largest loss varying from (6-30 Bn $) in a year exceeds a certain amount of loss. It is also observed from the OEP curve that the loss distribution was consistent with the starting OEPs and the claim count assumption. The occurrence-based reinsurance structures due to disasters can easily be formulated. It is also observed that severity has been found ranging from 20-36% for aggregate loss varying from (62-300 Bn $) in a year exceeds a certain amount of loss using Monte Carlo Simulation. Therefore, aggregate based reinsurance structures due to disasters and reinstatements can easily be formulated. Further, A standard Visualization of the Occurrence and Aggregate EP curves clearly indicated that the AEP was found to be always greater than OEP for a particular loss starting from max. cumulative loss i.e.30 Bn $. Therefore, concluded that aggregate based reinsurance structures will be entirely different from the occurrence-based structures.

Keywords: Exceedance Probability, Occurrence Exceedance Probability, Aggregate Exceedance Probability, Monte-Carlo Simulation, Max. Annual Loss

Edition: Volume 13 Issue 6, June 2024

Pages: 1877 - 1887

DOI: https://www.doi.org/10.21275/SR24628185237

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