Making Catastrophe Insurance Decisions When the Science Is Uncertain

Insurance and reinsurance are useful mechanisms for managing the risks associated with natural hazards. Projections of the future frequency and severity of these hazards can be generated from computational models, and the rapid development of such models has led some to advocate greater use of them in the insurance industry. But the uncertainty contained in these model-based projections, and the lack of agreed methods for handling it, represent a significant hurdle to their use. In this talk Richard Bradley will look at one particular kind of decision—pricing catastrophe insurance—and explore what scientific (or model) uncertainty, and the resulting ambiguity in loss probabilities, means for such decisions. Bradley will argue that making good decisions of this kind requires both that scientists are able to measure and communicate the uncertainty contained in their projections and that decision makers make use of these projections in a manner sensitive to the (dis)value that decision makers place on uncertainty about the outcome of their decisions. The Science and Values in Climate Risk Management Speaker Series hosts invited speakers to generate discussion bridging the scientific and ethical sides of climate change research. The speakers will present new ideas designed for an interdisciplinary audience. This series is organized by the Center for Climate Risk Management and the Climate and Sustainability Ethics Initiative in the Rock Ethics Institute, which is convened by Casey Helgeson, Klaus Keller, and Nancy Tuana.