On Statistical Modelling Of Floods And Drought Insurance Products For Developing Countries

Abstract

Probabilistic models have been used to measure risk, the chance of occurrence of unfavourable events. The extend of damage may then take the form of a random variable. In this paper we follow such an approach to arrive at methods of obtaining estimates of the monetary economic loss due to the particular risks, disasters due to the floods and drought, with application to product pricing of the relevant possible insurance products.

Environmental natural disasters, which include floods and droughts, are common in the poor developing countries and may lead to destruction of property and even loss of lives. When such disasters occur emergent funds are required to meet immediate needs of the affected population (food, shelter, medicine, among others). The recent Tsunami disaster in East Asia, for instance, leads to urgent need of donor aid support by the affected countries. The financial support is mainly provided for by the rich developed countries. Such support could be availed before the disaster occurs and used to purchase the relevant insurance.