The Effect of Climate Change on House Insurance: Spatio-Temporal Modeling of Flood-Related Damages and Claims

• Activity Number: 284
• Type: Invited
• Date/Time: Tuesday, August 2, 2016 : 8:30 AM to 10:20 AM
• Sponsor: SSC
• Author(s): Yulia R. Gel and Vyacheslav Lyubchich*
• Companies: The University of Texas at Dallas and University of Maryland Center for Environmental Science
• Keywords: insurance ; climate change ; tail indixes ; time series ; extreme events ; space-time processes

Abstract

Last few years were particularly volatile for the insurance industry in North America and Europe, bringing a record number of insurance claims due to extreme weather events. For example, in 2013 weather related damages cost more than $3 billion to insurers in the USA and Canada alone. According to the 2013 World Bank study, annual average losses from natural disasters have been increasing from $50 billion in the 1980s to approximately $200 billion in the recent years. In this paper we aim to provide a statistical data-driven insight into a (non)linear relationship between weather-related insurance claims and weather variables, and to predict future claim dynamics accounting for changes in extreme weather. We develop a new data-adaptive method to compare tails of the observed and projected weather variables and evaluate the impact of the shifts in extremes on the dynamics of house insurance claim counts. We illustrate our approach by studying insurance claim dynamics in Canada and Norway.