Abstract
This paper discusses three major problems with traditional risk assessments: risk assessments produced and used in circumstances that are adversarial in nature and often subject to adversarial bias; risk assessments tending to implicitly include cost-of-error and value-related biases; and risk assessments that cannot be performed, or, if performed, are in error when applied to hard-to-quantify risks.
This paper then discusses advantages of market risk assessments (MRAs, defined as probability and consequence products estimated by parties with substantial interests in the accuracy of the estimates, such as insurance companies) over traditional risk assessments: their potential for being unbiased; their combination of quantitative and qualitative information and assessments, which have tended to be difficult for traditional risk assessments; and their relatively wide availability and low cost. MRAs thus may be thought of as an untapped resource which might be used to supplement traditional risk assessments.
Four areas of future research are suggested: the characteristics and conditions required for the existence of MRAs; the methodologies necessary for extracting MRAs from insurance premiums; the structure of insurance programs, coverage designs, and insurable event definitions in order to maximize the value of MRAs; and how, if at all, MRAs can be appropriately used in public policy and regulatory dispute resolution.
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© 1987 Plenum Press, New York
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Fairley, W.B., Meyer, M.B., Chernick, P.L. (1987). Insurance Market Assessment of Technological Risks. In: Covello, V.T., Lave, L.B., Moghissi, A., Uppuluri, V.R.R. (eds) Uncertainty in Risk Assessment, Risk Management, and Decision Making. Advances in Risk Analysis, vol 4. Springer, Boston, MA. https://doi.org/10.1007/978-1-4684-5317-1_7
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DOI: https://doi.org/10.1007/978-1-4684-5317-1_7
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