Flood Risk Bias Analysed through a Multi-State Flood Insurance Model

Flood risk bias introduced through the traditional method of flood frequency analysis can distort the assessment of flood insurance premium, the fair actuarial rate of flood insurance, even though the insurance payout is maintained the same. The extent of this statistical bias is examined through the concept of expected probability analysis.To assist in the analysis of flood risk bias, a multi-state: insurance is developed, based on some of the basic assumptions of the two-state insurance model developed by Lippman and McCall.