A system approach to management of catastrophic risks
There are two main strategies in dealing with rare and dependent catastrophic risks: the use of risk reduction measures (preparedness programs, land use regulations, etc.) and the use of risk spreading mechanisms, such as insurance and financial markets. These strategies are not separable. The risk reduction measures increase the insurability of risks. On the other hand, the insurance policies on premiums may enforce risk reduction measures. The role of system approaches, models and accompanying decision support systems becomes of critical importance for managing catastrophic risks. The paper discusses some methodological challenges concerning the design of such models and decision support systems.
risk insurance catastrophe modeling stochastic optimization