The influence of weather on the insurance industry in nairobi

Abstract

This paper investigated the relationship between rainfall and losses in revenue incurred by owners of buildings and property , in fire domestic and industrial insurance classes, during the years 1997 - 2000 and the ensuing claims that insurance companies in Nairobi had to pay. A rainfall derivative was then formulated. The methodologies included correlation, regression analysis, and questionnaire analysis. Results showed that extreme weather events, particularly excessive rainfall, had a direct impact on the extent of damage on buildings and property. It also became clear that insurance companies did not necessarily consult the meteorologists when underwriting policies and furthermore did not particularly consider that the meteorological information and products issued were relevant or accurate. This information will form the basis for a broader, more detailed study within the interdisciplinary field of Actuarial Science and Meteorology in Kenya, and will aim at creating useful and accurate weather derivatives that can be traded.