Probabilistic assessment of earthquake insurance rates for buildings - Seismic Risk Analysis and Management of Civil Infrastructure Systems - page 788

PRP
LF

k

CPP = [29.5]

k

1 −

where LF load factor which covers the hidden uncertainties, administra-

tion, business, and taxation expenses, and a reasonable profi t allowance for
the insurance fi rm. In previous studies for Turkey, the corresponding load
factor is taken as 0.4 (Gurpinar and Yucemen, 1980; Yucemen, 2005) and
with this value of LF, the commercially priced earthquake insurance
premium that will be charged by the insurance companies becomes:

=

CPP =× 167 . PRP [29.6]

k k

However, one should bear in mind that the insurance rate charged by a
company is a function of its capital and the demand from the public. Other
key factors are reinsurance rates which are generally controlled by the
foreign reinsurance fi rms and market conditions. Another point to be noted
is the fact that the earthquake risk is low-probability, high-consequence loss
where a large number of dwellings are affected simultaneously by a common
cause; thus the independence assumption of the law of large numbers is
violated. Accordingly, the premium calculation based on the expected cost
may not be the best way. However, in the case of an insurance pool, like
TCIP, where the earthquake insurance is widely spread over the whole
country with approximately 3.5 million insured dwellings, it is still possible
to assume that the law of large numbers is valid. A fl owchart of the algo-
rithm for the computation of the earthquake insurance rates is shown in
Fig. 29.1.

29.3 Application: assessment of earthquake insurance

rates for different seismic zones in Turkey

Deniz and Yucemen (2007, 2009) have applied the model described above
to compute the earthquake insurance premium rates for reinforced con-
crete buildings constructed in 21 pilot locations (cities) located in the fi ve
seismic zones of Turkey. The steps of the application of the model are sum-
marized in the following subsections.

29.3.1 Probabilistic seismic hazard assessment

In the studies conducted by Deniz and Yucemen (2007, 2009), 21 city centers
were selected for the determination of the insurance premium rates. The
site group is established such that comparisons are possible with respect to
cities in different seismic zones (according to the seismic zoning map
accompanying the Turkish Seismic Code (Code, 1997), and with respect to
cities in the same seismic zone. In conducting the PSHA, the earthquake