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Natural Hazards and Earth System Sciences An interactive open-access journal of the European Geosciences Union
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Volume 13, issue 3 | Copyright

Special issue: Costs of Natural Hazards

Nat. Hazards Earth Syst. Sci., 13, 737-754, 2013
© Author(s) 2013. This work is distributed under
the Creative Commons Attribution 3.0 License.

Research article 20 Mar 2013

Research article | 20 Mar 2013

Estimation of insurance premiums for coverage against natural disaster risk: an application of Bayesian Inference

Y. Paudel, W. J. W. Botzen, and J. C. J. H. Aerts Y. Paudel et al.
  • Institute for Environmental Studies, Amsterdam Global Change Institute (AGCI), VU University Amsterdam, Amsterdam, the Netherlands

Abstract. This study applies Bayesian Inference to estimate flood risk for 53 dyke ring areas in the Netherlands, and focuses particularly on the data scarcity and extreme behaviour of catastrophe risk. The probability density curves of flood damage are estimated through Monte Carlo simulations. Based on these results, flood insurance premiums are estimated using two different practical methods that each account in different ways for an insurer's risk aversion and the dispersion rate of loss data. This study is of practical relevance because insurers have been considering the introduction of flood insurance in the Netherlands, which is currently not generally available.

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