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Insurance in a Changing Climate: A Retrospective Study of Water-Related Claims and Pricing Strategies in Norway

Author

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  • Shi, Yue

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Berentsen, Geir Drage

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Otneim, Håkon

    (Dept. of Business and Management Science, Norwegian School of Economics)

Abstract

Climate change has posed significant challenges to socioeconomic systems across the world, with the insurance industry at the forefront of facing climate risks. Recognizing the growing importance of climate risk management in insurance practices, this study investigates the impact of weather events on water-related home insurance claims by utilizing a unique dataset from a leading Norwegian insurance company. We propose an effective statistical model to address the zero-inflation and over-dispersion inherent in claim count data and introduce a retrospective approach to reconstruct historical claim profiles leveraging high-resolution weather data. Our results reveal geographical variations in weather-related risks for home insurance in two largest Norwegian cities and identify seasonal patterns in insurance claims. Furthermore, we evaluate both reactive and proactive pricing strategies based on the retrospective analysis, providing actionable insights for insurers to adjust premiums in response to evolving climate risks. This research offers a robust framework for integrating weather data into actuarial modeling and contributes to the adaptation of the insurance industry to a changing climate.

Suggested Citation

  • Shi, Yue & Berentsen, Geir Drage & Otneim, Håkon, 2025. "Insurance in a Changing Climate: A Retrospective Study of Water-Related Claims and Pricing Strategies in Norway," Discussion Papers 2025/3, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2025_003
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    References listed on IDEAS

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    1. Alexandre Mornet & Thomas Opitz & Michel Luzi & Stéphane Loisel, 2015. "Index for Predicting Insurance Claims from Wind Storms with an Application in France," Risk Analysis, John Wiley & Sons, vol. 35(11), pages 2029-2056, November.
    2. Andreas F. Prein & Roy M. Rasmussen & Kyoko Ikeda & Changhai Liu & Martyn P. Clark & Greg J. Holland, 2017. "The future intensification of hourly precipitation extremes," Nature Climate Change, Nature, vol. 7(1), pages 48-52, January.
    3. Peng Shi & Wei Zhang & Kun Shi, 2024. "Leveraging Weather Dynamics in Insurance Claims Triage Using Deep Learning," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 119(546), pages 825-838, April.
    4. Gao, Lisa & Shi, Peng, 2022. "Leveraging high-resolution weather information to predict hail damage claims: A spatial point process for replicated point patterns," Insurance: Mathematics and Economics, Elsevier, vol. 107(C), pages 161-179.
    5. Ida Scheel & Egil Ferkingstad & Arnoldo Frigessi & Ola Haug & Mikkel Hinnerichsen & Elisabeth Meze-Hausken, 2013. "A Bayesian hierarchical model with spatial variable selection: the effect of weather on insurance claims," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 62(1), pages 85-100, January.
    6. E. M. Fischer & R. Knutti, 2016. "Observed heavy precipitation increase confirms theory and early models," Nature Climate Change, Nature, vol. 6(11), pages 986-991, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Climate risk; weather-related insurance claims; retrospective study; premium pricing;
    All these keywords.

    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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