Dresden 2006 – scientific programme

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AKSOE: Physik sozio-ökonomischer Systeme

AKSOE 2: Financial Markets and Risk Management I

AKSOE 2.1: Talk

Monday, March 27, 2006, 10:15–10:45, BAR 205

Phase Transition Model of Catastrophe Insurance Claims — •Gordon Woo — RMS, 30 Monument Street, London, EC3R 8NB, UK

The evolution of catastrophe insurance modeling has been punctuated by major disasters that expose new loss phenomena, and promote improved understanding of unfamiliar extreme loss regimes. Hurricane Katrina in 2005 is such a disaster. The diversification of insurance risk within a large portfolio relies on sufficient randomness in individual loss experience. The diversification benefit is eroded if randomness transitions to a state of order, as may arise through a variety of disparate factors associated with the pattern of physical damage and the claims stochastic process. Physical damage factors include ancillary hazards, such as fire, flood and environmental pollution. Claims factors diminishing randomness include coarse collective loss adjusting procedures, demand surge arising from the bottlenecking of repairs, and legal and political intervention in the claims settlement process. Hurricane Katrina has demonstrated how the randomness structure of portfolio claims may be significantly altered in a super-catastrophe. This type of phase transition is studied theoretically from an econo-physics perspective, with a dynamical model being developed for local and global interactions.