Forecast The Insurance Policy Under Extreme Weather Using the Gray Forecasting Model

Abstract

Extreme-weather events have posed a great threat to the profitability of insurers and affordability of property owners. To mitigate the uncertain risk introduced by hurricanes, droughts, and plenty of other extreme weather, an insurance company decision making model is built. In the first stage, a combined model of CRITIC weight method and the Analytic Hierarchy Process (AHP simplified version) is used to calculate the weight of the specific indicators that impact the levels of underwriting risk. In the second stage, based on the indicators with the most weight calculated above, a gray forecasting model for Insurance Company is established to predict the underwriting risk in countries with adverse weather condition. It can be shown in the prediction results that all stage ratios of the translation transformed sequence are within the interval (0.834, 1.199). Therefore, the insurance companies should insure in areas where extreme weather events increase, which benefits their profits.