Published online by Cambridge University Press: 29 August 2014
Earthquakes and Windstorm can range in size from small easily insurable instances up to full scale Natural Disasters. This note is particularly concerned with the problem of forecasting, rating and insuring earthquakes and windstorm at the natural disaster end of this scale.
Before we tackle the peculiar problems of natural disaster insurance it is worth having a look at why insurance works so well in practice.
Is it because actuaries and statisticians have precisely measured the statistical risks involved, and have developed a detailed and complex mathematical approach to insurance, a true “Technical Basis” for Insurance? Or is it really quite simple?
A quotation (the first of many) from R. Heller [1] is relevant.
“The great and fabled business empires with hardly an exception were built… on irresistable ideas of elemental simplicity.”
Insurance is one of these great empires, and some of the simple ideas which may explain why insurance works so well are suggested below.