Risk Modeling of Property Insurance Claims from Weather Event

In this session we explore how the localized nature of severe weather events leads to a concentration of correlated risks that can substantially amplify aggregate losses. We propose a copula-based regression model for replicated spatial data to characterize the dependence between property damage claims from a common storm. The factor copula captures spatial dependence between properties and aspatial dependence induced by the common shock. The framework allows insurers to incorporate heterogeneity in marginal models of skewed, heavy-tailed, and zero-inflated insurance losses, while retaining model interpretation. Using hail damage insurance claims data from a US insurer, we demonstrate the effect of dependence on claims management decisions.