Developing a Post-Disaster Insurance Profile using an Evolutionary Game Theory

Abstract

The increasing rate and magnitude of natural disasters increase the financial burden on host communities. This paper develops an ex ante disaster insurance profile. To this effect, and utilizing an evolutionary game theory, this paper presents three stakeholders: (1) home owners purchasing disaster insurance policies; (2) insurers offering different insurance policies; and (3) state government offering different ex post disaster recovery compensation plans. The utilization of evolutionary game theory approach allows for maximizing the host community's total welfare by decreasing their losses depending on their needs and objective functions. The authors created a hypothetical sample of 1,000 home owners accounting for heterogeneous income levels, three insurers each offering three unique insurance plans and two different ex-post governmental disaster compensation plans. The results of the proposed model indicated that: (1) home owners evolved toward insurance plans with the least premium values; (2) insurance plans with the most comprehensive coverage did not survive through the evolutionary process; and (3) the evolutionary stable strategy is an oscillating line of chosen plans and insurers as a result of the stochastic and dynamics nature of the hazardous event. Currently, the authors are integrating the proposed model into a holistic decision making tool incorporating social, environmental, and economic vulnerability indicators. This should allow for a better prediction for the host communities' disaster response, welfare, and resilience.

Meeting Name

Construction Research Congress 2016: Old and New Construction Technologies Converge in Historic San Juan, CRC 2016 (2016: May 31-Jun. 2, San Juan, Puerto Rico)

Department(s)

Civil, Architectural and Environmental Engineering

Keywords and Phrases

Contracts; Decision making; Disasters; Insurance; Stochastic models; Stochastic systems, Decision making tool; Disaster insurance; Economic vulnerability; Evolutionary game theory; Evolutionary process; Evolutionary stable strategies; Insurance policies; Objective functions, Game theory

International Standard Book Number (ISBN)

978-078447982-7

Document Type

Article - Conference proceedings

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2016 American Society of Civil Engineers (ASCE), All rights reserved.

Publication Date

01 Jun 2016

Link to Full Text

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