Determination of Earthquake Insurance Premium Based on Great Physical and Economic Loss Using the Bayesian Method

Rezki Aulia Rahman; Betty Subartini; Sukono Sukono; Sivaperumal Sampath

doi:10.47194/orics.v4i1.207

Authors

Rezki Aulia Rahman
rezki18001@mail.unpad.ac.id
Mathematics Undergraduate Study Program Faculty of Mathematics and Natural Science, Padjadjaran University, Jatinangor,
Betty Subartini Faculty of Mathematics and Natural Science, Universitas Padjadjaran, Jatinangor, Indonesia
Sukono Sukono Faculty of Mathematics and Natural Science, Universitas Padjadjaran, Jatinangor, Indonesia
Sivaperumal Sampath Faculty of Technology, VelTech University, India

Keywords:

Insurance, earthquake, loss estimation, Bayesian method, premium.

Abstract

Indonesia is an area prone to earthquakes because it is traversed by the meeting point of 3 tectonic plates, namely: the Indo-Australian plate, the Eurasian plate and the Pacific plate. An earthquake is an event where the earth vibrates due to a sudden restraint of energy in the earth which is characterized by the breaking of rock layers in the earth's crust. Almost all regions in Indonesia are at risk of being exposed to earthquakes. To anticipate the risk of natural disasters, earthquakes are advised to join the insurance program provided by the insurance company. This study aims to determine earthquake insurance premiums based on large physical and economic losses. The method used is the Bayesian method. This method produces each estimated loss value which is then used to calculate the combined estimated loss value. After that, the combined estimated loss value is used to calculate the premium value. The result of this research is the premium which is calculated based on the principle of expected value and standard deviation principle. The premium resulting from the expected value principle is lower than the premium resulting from the standard deviation principle.

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