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Earthquakes and Windstorm — Natural Disasters

Published online by Cambridge University Press:  29 August 2014

J. M. Ryder  and
D. J. Kimber
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Earthquakes and Windstorm can range in size from small easily insurable instances up to full scale Natural Disasters. This note is particularly concerned with the problem of forecasting, rating and insuring earthquakes and windstorm at the natural disaster end of this scale.

Before we tackle the peculiar problems of natural disaster insurance it is worth having a look at why insurance works so well in practice.

Is it because actuaries and statisticians have precisely measured the statistical risks involved, and have developed a detailed and complex mathematical approach to insurance, a true “Technical Basis” for Insurance? Or is it really quite simple?

A quotation (the first of many) from R. Heller [1] is relevant.

“The great and fabled business empires with hardly an exception were built… on irresistable ideas of elemental simplicity.”

Insurance is one of these great empires, and some of the simple ideas which may explain why insurance works so well are suggested below.

Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 9 , Issue 3 , December 1977 , pp. 317 - 324
Copyright
Copyright © International Actuarial Association 1977

References

[1] Heller, R., The Naked Manager. This chatty little book is a mine of stimulating ideas on management and its myths.Google Scholar
[2] These simple ideas are discussed in more detail in — Ryder, J. M. The Simple Minded Actuary—1976, General Insurance Bulletin No. 5. (An informal publication circulated in Australia).Google Scholar
[3] The attack on Risk Theory is developed in—Ryder, J. M., Subjectivism —A Reply in Defence of Classical Actuarial Methods, Part III (iii). J.I.A. 1976, 103, 59. A general theory for the adaptive control of insurance processes is discussed in—Ryder, J. M., A General Theory of Insurance, 1976, General Insurance Bulletin No. 6.CrossRefGoogle Scholar
[4] e.g. “The claim is often made that we “derive” estimates of probabilities—that is predictions of frequencies—from past occurrences which have been classified and counted (e.g. mortality statistics). But from the logical point of view there is no justification of this claim. We have made no logical derivation at all. What we may have done is to advance a non-verifiable hypothesis which nothing can ever justify logically: the conjecture that frequencies will remain constant and so permit extrapolation”. — Popper, K. R., The Logic of Scientific Discovery, Hutchinson; London, 1968.Google Scholar
[5]Seal, H. L., Stochastic Theory of a Risk Business, John Wiley and Sons 1969.Google Scholar
[6]Almer, B., Modern General Risk Theory, A.S.T.I.N. 1967, IV, 136.Google Scholar
[7] “Earthquakes” Munich Re, 1973.Google Scholar
[8]Buchanan, R. A., and others, A Natural Disaster Scheme for Australia, 1967, General Insurance Bulletin No. 7.Google Scholar