Mathematical model of flood insurance: an optimization approach
The Citarum Basin has frequently happen flooded and caused many losses for societies that are living surrounding this area. As a result, the government and several social institutions provided some of the compensation types for societies when their houses are damaged such as the refuges, foods, medi...
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| Format: | Thesis Book |
| Language: | English |
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| Summary: | The Citarum Basin has frequently happen flooded and caused many losses for societies that are living surrounding this area. As a result, the government and several social institutions provided some of the compensation types for societies when their houses are damaged such as the refuges, foods, medicines and building equipment. However, the amount Of compensation received by the people cannot fully coverage their losses. Thus, the people should find the best solution for an alternative to solve their problem about these losses. One of the solutions that can solve this issue among society is insurance. The insurance can minimize losses due to random events caused by floods but the value of compensation to cover these losses is still not optimal in terms of the sum of money coverage for repairing the buildings were damaged. This study uses a secondary data that was collected from Regional Environmental Supervisory Agency (Badan Pengawas Lingkungan Hidup Daerah), Bandung, Indonesia, and is analyzed using the probability analysis namely the logistic regression, which is estimated via genetic algorithm approach. Further, to determine the optimal value of flood insurance premiums, this study has adopted some approaches including the value of expectation, the value of premium variance, the value of standard deviation, and premium models such as Esscher method, proportional hazard, Wang's model, Swiss model, and Dutch model. Meanwhile, the analysis of optimization to compensate the society'S costs for repairing their damaged buildings uses two approaches namely Integrated Catastrophe Risk Model (ICRM) with the linear program, and ICRM with the Genetic Algorithm (GA). The results of the analysis shows that the factors which can increase the vulnerability of floods surrounding the river of Citarum Basin is the changes of the use of protected areas, the soil surface, the rate of sedimentation, the pile of garbage in the river inhibiting the flow of water, and the growth of population density around this area. In addition, in the calculation of flood insurance premiums, this study found that the larger initial reserves the bigger of the quotas on reinsurance during the previous period of the disaster could increase the income of insurance company that earned from the payment of premium. All of these strategies are expected can cover immediately the financial losses of societies that caused by the floods. In the optimization case between the linear program and the GA's method, this study found that the ICRM with the GA shows an ability to solve a complex system of premium distribution. Besides that, ICRM with GA's does not only give the best solution compared to ICRM with the linear program that offers a nonunique solution or the best solutions. Therefore, for a complex and dynamic problem, the ICRM with the GA's is very relevant because of its ability to produce a robust and versatile combination of the solution. |
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