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

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  • Nicoleta Radu

    (Doctoral School of Finance, Faculty of Finance and Banking, Bucharest University of Economic Studies, 010374 Bucharest, Romania)

  • Felicia Alexandru

    (Department of Finance, Faculty of Finance and Banking, Bucharest University of Economic Studies, 010374 Bucharest, 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.

Suggested Citation

  • Nicoleta Radu & Felicia Alexandru, 2022. "Parametric Insurance—A Possible and Necessary Solution to Insure the Earthquake Risk of Romania," Risks, MDPI, vol. 10(3), pages 1-16, March.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:3:p:59-:d:766625
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    References listed on IDEAS

    as
    1. Giriraj Amarnath & Upali A. Amarasinghe & Niranga Alahacoon, 2021. "Disaster Risk Mapping: A Desk Review of Global Best Practices and Evidence for South Asia," Sustainability, MDPI, vol. 13(22), pages 1-23, November.
    2. Daniel J. Clarke, 2016. "A Theory of Rational Demand for Index Insurance," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 283-306, February.
    3. Francesco De Masi & Donatella Porrini, 2018. "Vulnerability to Natural Disasters and Insurance: Insights from the Italian Case," IJFS, MDPI, vol. 6(2), pages 1-12, June.
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    Cited by:

    1. Nicoleta RADU, 2022. "Reinsurance – an efficient solution of catastrophe risk transfer for the housing stock of Romania," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(631), S), pages 139-150, Summer.

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