Work

Assessing the value of information in pricing insurance against multiple hazards: the case of earthquake and liquefaction

Year: 2026

Type: article

Abstract: Pricing of natural hazard insurance requires robust estimates of potential losses from multiple interacting hazards, even in the presence of significant uncertainty in key risk parameters such as site conditions and structural characteristics. This article presents a framework for quantifying the Value of Information (VoI) provided by targeted, site-specific data to reduce the uncertainty in multi-hazard earthquake and liquefaction risk assessments and to support more informed insurance decision-making. The proposed framework builds on a loss assessment methodology that integrates earthquake shaking and liquefaction hazards, capturing their combined effects on structural vulnerability and expected losses, and applies principles of expected utility theory and decision-making to identify optimal insurance pricing for both clients and insurer.The approach is demonstrated through a case study in New Zealand, a seismically active country where variability in ground conditions, particularly Vs30, strongly influences seismic risk. A probabilistic graphical model captures conditional dependencies between shaking, liquefaction, and structural damage, enabling realistic estimation of expected losses. VoI is computed separately for insurers and clients, accounting for premium structures and the financial consequences of incorrect insurance decisions. Results show that VoI is greatest in high-risk, high-uncertainty contexts, particularly where low stiffness soils amplify liquefaction-related losses. While data collection consistently benefits clients, insurers may experience diminishing or even negative VoI as clients adopt more conservative insurance strategies.The VoI framework offers practical insights into balancing data acquisition costs against financial benefits, supporting resilient and equitable insurance systems in regions exposed to natural hazards.

Source: International Journal of Disaster Risk Reduction

DOI: 10.1016/j.ijdrr.2026.106052

Authors: Susanna Keith, Enrico Tubaldi, Marco de Angelis, Svetlana Stripajova, John Douglas

Institution: University of Strathclyde

Language: English

Topic: Seismic Performance and Analysis

Subfield: Civil and Structural Engineering

Field: Engineering

Domain: Physical Sciences

SDG: Sustainable cities and communities

Open Access status: hybrid

Estimated APC paid: $3,200