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Insurance Supervision under Climate Change: A Pioneers Detection Method

Author

Listed:
  • Eric Vansteenberghe

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

I present the Pioneers Detection Method, a supervisory tool I developed to enhance resilience in insurance markets facing the challenges posed by climate change. Based on a theoretical model of the insurance industry, I consider a scenario in which independent experts determine premiums according to their individual risk assessments. Due to the segmented nature of the private insurance market, accurately estimating the tail parameter of loss distribution is difficult, especially given the rarity of extreme events. My method leverages temporal directional change and convergence to integrate expert opinions, giving greater emphasis to those who effectively identify trend shifts after climatic tipping points. A series of simulations reveals that the Pioneers Detection Method outperforms traditional pooling methods within a Bayesian framework. Furthermore, this approach appears to be notably effective in improving welfare in an insurance market with a limited number of private entities.

Suggested Citation

  • Eric Vansteenberghe, 2023. "Insurance Supervision under Climate Change: A Pioneers Detection Method," PSE Working Papers halshs-04350178, HAL.
    • Handle: RePEc:hal:psewpa:halshs-04350178
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04350178v1
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