On flood risk management across socio-economic environments

In this paper, we discuss the insuring of flood losses across socio-economic environments, by pooling their risk exposures at continental and global levels. Grouping regions by their flood count over the last century, we cluster countries based on estimations of their value-at-risk, minimising the total value-at-risk from all clusters, as in Prettenthaler, Albrecher, Asadi, and Köberl (2017). Using heavy-tailed distributions to model the losses (presented as percentages of GDPs and adjusted to inflation), we seek an optimal risk pooling strategy across countries, irrespective of their socio-economic status. The financial benefits for such risk sharing, both at the continental and global levels, are quantified by the overall corresponding values-at-risk with or without pooling. We advocate this risk partner- ship across socio-economic environments, as a mechanism for reducing risk premiums and increasing efficiency in disaster response.