PRICING RESIDENTIAL EARTHQUAKE INSURANCE IN INDONESIA

Adaptive Social Protection (ASP) is a framework that integrates social protection, disaster risk reduction, and climate change adaptation to enhance resilience against shocks and hazards. As a country vulnerable to earthquakes, Indonesia faces threats of losses due to seismic disasters. The national budget available to cover these losses can only address 13.6% of the total disaster-related losses. This study proposes an earthquake insurance scheme to protect all residences in Indonesia as part of the ASP framework, followed by the calculation of premium rates for this insurance scheme. This study utilizes the built-in OpenQuake calculator known as the probabilistic event-based risk calculator to simulate annual earthquake losses over a period of 10,000 years. The negative binomial distribution and the Pareto IV distribution are assessed as the most optimal models in modeling frequency and severity through distribution fitting. The application of collective risk models and the principle of pure premium results in a pure premium rate of 0.3994073 ‰. This pure premium rate can serve as a starting point in the establishment of comprehensive residential earthquake insurance in Indonesia.