New paper with Molly James and Hani Ali, now available on https://arxiv.org/abs/2107.07668
The economic consequences of drought episodes are increasingly important, although they are often difficult to apprehend in part because of the complexity of the underlying mechanisms. In this article, we will study one of the consequences of drought, namely the risk of subsidence (or more specifically clay shrinkage induced subsidence), for which insurance has been mandatory in France for several decades. Using data obtained from several insurers, representing about a quarter of the household insurance market, over the past twenty years, we propose some statistical models to predict the frequency but also the intensity of these droughts, for insurers, showing that climate change will have probably major economic consequences on this risk. But even if we use more advanced models than standard regression-type models (here random forests to capture non linearity and cross effects), it is still difficult to predict the economic cost of subsidence claims, even if all geophysical and climatic information is available.
Our research paper, Insurance against Natural Catastrophes: Balancing Actuarial Fairness and Social Solidarity, with Molly James and Laurence Barry, is now available.
Natural disasters offer a special case for the study of private and public insurance mix. Indeed, the experience accumulated over the past decades has made it possible to transform poorly known hazards, long considered uninsurable, into risks that can be assessed with some precision. They exemplify however the limits of the risk-based premiums method, as it might imply unaffordability for some. The French scheme reflects such ideas and offers a wide coverage for moderate premiums to all, but is shaken by climate change: we show that some wealthier areas, that were not perceived as “at risk” in the past, have become exposed to submersion risk in the future. This singularly makes some well-off properties the potential main beneficiaries of a scheme that was historically thought to protect the worst-off. Acknowledging that some segmentation might become desirable, we examine several models for flood risk and the disparity in premiums they entail.
Tuesday morning, Antoine Ly will defend his PhD thesis.
And earlier in the morning (breakfast time) I will give a talk with Molly James at the Chaire PARI Seminar. Slides are available online.