Risk Anal. 2019 Mar;39(3):713-728. doi: 10.1111/risa.13179. Epub 2018 Aug 28.

An Insurance Model for Risk Management of Process Facilities.

Risk analysis : an official publication of the Society for Risk Analysis

Seyed Javad Hashemi, Faisal Khan, Salim Ahmed

PMID: 30153705 DOI: 10.1111/risa.13179

Abstract

Most existing risk management models for process industries do not consider the effect of insurance coverage, which results in an overestimation of overall risk. A model is presented in this article to study the effect of insurance coverage of health, safety, environmental, and business risks. The effect of insurance recovery is modeled through the application of adjustment factors by considering the stochastic factors affecting insurance recovery. The insurance contract's conditions, deductibles, and policy limits are considered in developing the insurance recovery adjustment factors. Copula functions and Monte Carlo simulations are used to develop the distribution of the aggregate loss by considering the dependence among loss classes. A case study is used to demonstrate both the practical application of the proposed insurance model to improve management decisions, and the mitigating effect of insurance to minimize the residual risk.

© 2018 Society for Risk Analysis.

Keywords: Copula; insurance premium; loss modeling; oil and gas; process operations; risk aggregation

Publication Types

• Journal Article
• Research Support, Non-U.S. Gov't

Grant support

• Canada Research Chair Program/International
• Natural Science and Engineering Research Council of Canada/International
• Canada Research Chair Tier I Program in Offshore Safety and Risk Engineering/International