PKoli wrote:StatMeister,
I am amzed that the actuarial models do not capture weather events. It would be understable for earthquakea due to unpredictability nature of such events. I thought that models should look at frequency of occurence of certain extreme weather events and price premiums accordingly. We live with nature and its extreme occurences.
@pkoli, the models would capture it, and price the premium at high levels, say 70% of insured loss (does it make sense to part with so large sums when you can just put it in t bills?)
What insurance does not do is insure correlated risks.
Example: consider an employer having 100 employees insured for 1m each, and having a fleet of 50 vehicles insured for 2m each.
If one person dies (1m life cover) does not mean another person dies. Hence remaining 99 continue to pay premiums which pay for 1st person's loss.
Now think of PEV, if they burn 1 vehicle, why would they not burn the remaining 99? If that happens, no premiums hence losses have to be paid from capital account (remember the 500m minimum).
Its this herd effect that makes such un-insurable, atleast at the enterprise level.
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