Flood Loss Estimation
by George R. Walker
If flood losses are to be insured it is necessary that an estimate of likely losses can be made. It is necessary for solvency reasons. For flood insurance to be viable it is also desirable that probabilistic estimates of loss be able to be made in terms of property type and location so that the risks can be appropriately rated.
One of the arguments that has been advanced against making flood insurance widely available is that it is not possible to estimate likely losses at least presumably not as well as for tropical cyclones, earthquakes, hailstorms and other hazards for which insurance is widely available.
It is argued in this paper that this is a fallacious argument. In relation to probable maximum losses for solvency reasons, flood losses are no less uncertain than losses from other hazards, and from a technical point of view rating for flood is probably more reliable than the other hazards. The issue is not one of whether it can be done, but rather whether it can be done for the low price which the industry seems only prepared to pay for hazard risk information.
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