Parametric Insurance—A Possible and Necessary Solution to Insure the Earthquake Risk of Romania

Abstract

The rapid growth over recent decades of the impact of natural disasters on economies, especially in vulnerable areas, urges stakeholders to promote innovative solutions involving risk transfers that account for the new risk exposures. These proposed solutions are designed to optimize and expedite the indemnification process, which can ultimately be beneficial for both policyholders and insurers alike. This article explores the possibility of supplementing the current Romanian dwelling insurance protection scheme with a parametric mechanism. To determine the triggering parameter of the insurance pay-out, the authors consider various hazard scenarios developed based on historical events. This paper focuses on Probable Maximum Loss (PML) determination computed for events with epicenters in the Vrancea (a region and a mountain in the Carpathians) seismic area. This area is the most exposed in Romania to earthquakes, and it includes the capital, Bucharest, which is the urban area with the highest population concentration and, consequently, the highest exposure to the discussed risks.

A spatiotemporal analysis of precipitation anomalies using rainfall Gini index between 1980 and 2022

“…As a result of severe climate change, extreme drought events are expected to increase in both frequency and magnitude (Seneviratne et al, 2021), potentially necessitating the incorporation of suitable parametric insurance strategies to mitigate its financial impacts on agricultural production, allowing farmers to recover from the disaster at a faster pace (Broberg, 2019). Parametric insurance is a tool for reducing drought impacts in agriculture, serving as a self-sufficient mitigation mechanism to attenuate social vulnerability to environmental disasters from a broad perspective (Radu & Alexandru, 2022). Typically, it is based on robust indices that have been demonstrated to be correlated with natural disasters (Monteleone et al, 2020), such as drought.…”