Analysis and Application of Decision Models Based on Risk Assessment and Insurance Pricing

Abstract

Under the current weather conditions with frequent global changes, insurance companies are facing a more complex and dynamic risk environment. Therefore, effective risk assessment and reasonable insurance pricing strategies are particularly important. This paper establishes a risk assessment decision model and an insurance pricing model. The risk assessment decision model utilises the frequency of local extreme weather events and average losses, combined with interest rates to calculate the present value of expected future losses, in order to assess whether to underwrite insurance in a particular area. It supports insurers' judgement and operations in area underwriting decisions by calculating risk tolerances and risk gaps. The Insurance Pricing Model focuses on setting reasonable insurance rates based on risk levels. It recommends higher premiums in high-risk areas to cope with possible losses and lower premiums in low-risk areas to increase market competitiveness. Using case studies from the US and Africa, the document demonstrates the effectiveness of these models in real-world applications. Using historical data and ARIMA models to predict future losses provides insurers with a scientific basis to help them make sound underwriting and pricing decisions.