Premium
Simulation of a National Flood Insurance Fund
Author(s) -
Schaake John C.,
Fiering Myron B
Publication year - 1967
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1029/wr003i004p00913
Subject(s) - reinsurance , damages , flood myth , actuarial science , flood insurance , variance (accounting) , econometrics , economics , business , environmental science , geography , accounting , archaeology , political science , law
A model for simulating a national flood insurance fund is formulated. The objective is to model the fund and to specify optimal or near‐optimal values of the premium rates, discount coefficients, initial capitalized value, and the reinsurance structure. The simulation model synthesizes flow traces, maps these into damages, collects premiums, indemnifies losses, collects reinsurance premiums from the insurance industry, and indemnifies that industry's excess losses. Relevant statistics that describe the behavior of the fund are accumulated. The mean and variance of simulated annual flood damages for the United States agree well with results of other studies. The agreement is particularly good in view of the paucity of systematically collected flood data in urban areas. Exponential growth in the variance of the fund over time was observed. This growth can be controlled by managing the fund.