Assessing the effectiveness of fire prevention strategies

ABSTRACT

The authors examined the process of assessing the effectiveness of fire prevention within a Fire and Rescue Service in north west England, demonstrating how this was applied in practice. The approach to fire prevention strategy assessment included overall fire and rescue service performance, performance in relation to different population segments, cost per head performance, and multi-agency collaboration to support an effectiveness-based rather than outcomes-based performance assessment.     

Mathematical models regarding fire and consequential loss

Abstract

In consequence of the development of risk management, fire insurers often meet a demand for substantial amounts of self retention, especially from large industrial clients.     

Personality traits,basic individual values and GMO risk perception of twitter users

Abstract

The present study investigates how the most foundational factors to individual differences – personality traits and personal values – affect the perceived safety of genetic modification and their relative importance. Publicly available communication data from 522 Twitter accounts discussing genetically modified foods and their safety was processed in two steps. First, accounts were categorized by the researchers as viewing GM foods as either safe or not safe. Second, using the IBM Watson platform, the Twitter communication data were subjected to lexical analysis to assign scores according to the Five Factor Model for personality traits and Schwartz’s basic individual values to the individual accounts. Logistic regression analyses were performed to determine how perceived GM food safety is linked to personality traits and individual values. Although both traits and values significantly contribute to explaining GM attitudes, personality traits strongly moderate the effect of individual values on risk perception.     

Emerging risk of autoignition and fire in underground coal storage

The risk and prevention of autoignition in underground coal storage facilities are reviewed in the light of the recent incidents of smouldering fires. Also, the opportunities are considered on the efficiency of the alternatives to prevent and extinguish closed-space fires. The complexities in avoiding and extinguishing underground fires are highlighted in the case example, describing the observations and outcome of a smouldering coal fire in the storage. The principles of self-heating and most critical factors in spontaneous combustion such as the condition and quality of coal are fairly well known, but usually only provide partial help in fire prevention. The documented cases and the case example suggest that nitrogen injection can be useful for extinguishing controllable fires. Three-phase foams and oxygen-displacing exhaust gases appear preferable against uncontrolled fires, particularly if access to the fire area is limited or impossible. Otherwise, efficient fire extinction during power plant operation can be challenging, as any air ingress tends to feed the fire and results in losses of the extinguishing agent and the heating value of coal. Methods and indicators for detecting and predicting the ignition are discussed, and improvements are suggested to enhance the storage and plant availability.     

An Approach to Fair Valuation of Insurance Liabilities Using the Firm’s Cost of Capital

Abstract

There are two competing and seemingly different methodologies for calculating fair values—the direct and indirect methods. The direct approach has the advantage of providing a more reliable assessment of the risk of financial leverage. The indirect method can be structured to adjust for financial leverage, however, the methodology becomes excessively complex. The advantage of the indirect method is that it can be more easily related to exit prices. Intuitively, an exit price should reflect both the creditworthiness of the firm and the cost of capital of the firm. How are these two concepts related? This paper attempts to advance the fair valuation methodology by addressing these questions and presenting a methodology for deriving the firm or own credit risk assumption (to be used with the direct method) that is consistent with the cost of capital assumption used with the indirect method.     

Intrinsic objective Bayesian estimation of the mean of the Tweedie family

ABSTRACT

The Tweedie family, which is classified by the choice of power unit variance function, includes heavy tailed distributions, and as such could be of significant relevance to actuarial science. The class includes the Normal, Poisson, Gamma, Inverse Gaussian, Stable and Compound Poisson distributions. In this study, we explore the intrinsic objective Bayesian point estimator for the mean value of the Tweedie family based on the intrinsic discrepancy loss function – which is an inherent loss function arising only from the underlying distribution or model, without any subjective considerations – and the Jeffreys prior distribution, which is designed to express absence of information about the quantity of interest. We compare the proposed point estimator with the Bayes estimator, which is the posterior mean based on quadratic loss function and the Jeffreys prior distribution. We carry a numerical study to illustrate the methodology in the context of the Inverse Gaussian model, which is fully unexplored in this novel context, and which is useful to insurance contracts.     

The influence of governance on investment: Evidence from a hazard model

Does corporate governance affect the timing of large investment projects? Hazard model estimates suggest strong shareholder governance may deter managers from pursuing large investments. Controlling for investment opportunities, firms with good governance experience longer spells between large investments. However, in the presence of financial constraints or strong CEO incentives (high delta (δ)), we find no such timing differences. Finally, these higher investment hazard firms exhibit significantly negative long-run operating and stock performance. Overall, our findings are consistent with the notion that poor governance associates with overinvestment.     

Optimal Annuitization Policies

Abstract

At, or about, the age of retirement, most individuals must decide what additional fraction of their marketable wealth, if any, should be annuitized. Annuitization means purchasing a nonrefundable life annuity from an insurance company, which then guarantees a lifelong consumption stream that cannot be outlived. The decision of whether or not to annuitize additional liquid assets is a difficult one, since it is clearly irreversible and can prove costly in hindsight. Obviously, for a large group of people, the bulk of financial wealth is forcefully annuitized, for example, company pensions and social security. For others, especially as it pertains to personal pension plans, such as 401(k), 403(b), and IRA plans as well as variable annuity contracts, there is much discretion in the matter.

The purpose of this paper is to focus on the question of when and if to annuitize. Specifically, my objective is to provide practical advice aimed at individual retirees and their advisors. My main conclusions are as follows:

? Annuitization of assets provides unique and valuable longevity insurance and should be actively encouraged at higher ages. Standard microeconomic utility-based arguments indicate that consumers would be willing to pay a substantial “loading” in order to gain access to a life annuity.

? The large adverse selection costs associated with life annuities, which range from 10% to 20%, might serve as a strong deterrent to full annuitization.

? Retirees with a (strong) bequest motive might be inclined to self-annuitize during the early stages of retirement. Indeed, it appears that most individuals—faced with expensive annuity products—can effectively “beat” the rate of return from a fixed immediate annuity until age 75?80. I call this strategy consume term and invest the difference.

? Variable immediate annuities (VIAs) combine equity market participation together with longevity insurance. This financial product is currently underutilized (and not available in certain jurisdictions) and can only grow in popularity.     

The Integration Of Financial Services in Europe

Abstract

Changes over the last few decades in managing risk and investing money have been so radical that we can only describe them as being huge disruptions, maybe even revolutions. The boundaries that used to exist between the different financial activities have disappeared. Although things have accelerated rapidly over the last few decades, we should keep in mind that these developments are by no means new. The pawnbrokers and foreign exchange dealers of the Middle Ages, whose professions were separate and clearly identifiable, have seen their activities completely integrated into so-called universal banking services. More recently, merchant banks in France, who used to be the subject of specific regulation, have disappeared as separate legal entities. In the insurance field, it was barely 30 years ago, that some large businesses insured only against fire risks and others only casualty risks. The distinction between life and non-life, which is still maintained in the regulations, makes little sense in the everyday reality of insurance groups who transact these two activities together.

However, when we talk of the integration of financial services, we have in mind an even more recent phenomenon. Financial integration incorporates two developments, known in French as bancassurance and assurfinance. Today, under extremely diverse legal guises but following the same economic logic, banks sell insurance products and insurance networks sell banking products.

This movement can only be understood initially as the result of a need to diversify. Each one of these two large categories of financial intermediaries borrowed something from the other in order to increase its product range or bolster the know-how of its networks. It was simply about making sales organizations more cost effective by having them sell products outside of their traditional skills area, at more or less marginal cost. Today the expansion of offerings is done, approved, and even expounded on by theorists. And so now the next question is whether we should go further—turning our attention from distribution to manufacturing. This is where the current debate on the integration of financial services lies. Bluntly, if we allow banks to sell insurance policies and insurers to sell consumer credit, should we allow a joint organization to design such products and distribute them down both channels at the same time? More subtly, we might ask ourselves whether we should be exercising more specific control over these financial conglomerates that, while maintaining a formal legal separation between banking and insurance, constitute in fact a single decision-making center.

This article sets out to portray what is perhaps not the state of the law, but at least the state of the art, on this topic in the European Union. In the first part, it will show that while sales integration is an undeniable fact, with the customer seeing fewer and fewer differences, it still remains that banks and insurance carriers are separate entities from a legal perspective and that the European Union remains totally committed to controlling financial conglomerates. In practice, integration of financial services takes different forms. In part two, we examine cases involving problems between entities doing the same job, and cooperation between design facilities without any apparent desire to go further. In the long run, this integration will succeed only if it receives the public?s approval. Part three addresses what consumers and investors want. We observe that after decades of exposure to specialized networks, consumers are not necessarily as enthusiastic as proponents of integration would have hoped. As adult consumers, they are not prepared to buy just any financial service anywhere they can, and they still largely place their trust in the brands they know.     

Briys,Eric, and de Varenne,François,Insurance: From Underwriting to Derivatives: Asset Liability Management in Insurance Companies

Abstract

This paper uses economic principles to analyze alternative recognition schemes for end-of-period retirement plan liabilities; the candidates, using U.S. nomenclature, are the vested benefit obligation (VBO), the accumulated benefit obligation (ABO) and the projected benefit obligation (PBO).

In competitive employment markets with rational contracting we are unable to justify projected costing (PBO-based) for typical pay-related defined benefit plans. Projected costing misrepresents the economic obligations incurred by shareholders and invites moral hazard.

Employee exposure to moral hazard may be minimized by exit costing (VBO-based) which recognizes only those benefits to which an exiting employee is entitled under the explicit benefit contract. But exit costing may not fully inform shareholders about the obligations that they have incurred under implicit contracts that extend beyond the plan document. Accrued costing (represented in the United States by the ABO) may better measure shareholders’ economic commitments.

Small differences between the ABO and the VBO may measure a human capital asset incented by delayed vesting and benefit eligibility. Large differences are a marker for frail benefit design and potential moral hazard.

Moral hazard options exercised by employers disappoint employees and may lead to unwelcome ex-post results-oriented repairs imposed by legislators, regulators and courts.     

Estimating price trends for residential property: A comparison of repeat sales and assessed value methods

The repeat sales methodology for estimating residential price indices is based on actual appreciation of individual properties. On the other hand, the repeat sales method wastes data, typically discarding a large percentage of all sales. This article explores two issues related to the subsample of repeat sales. First, are paired sales representative of the entire population of properties that sold? Second, is there evidence that sample selectivity biases the price trend estimates? Evidence from five metropolitan areas supports a negative answer to the first question and the second question. It appears that a “lemon” or “starter home” effect causes repeat residential sales to be a biased subsample of all transactions. Cumulative price trends for the repeat subsamples can differ from the full samples over periods ranging from two to ten quarters. While short-term price trends can differ widely, there are no systematic differences among the samples over long periods of time (e.g., three years or more).     

Implementation of HACCP in the risk management of medical waste generated from endoscopy

Medical waste poses health hazards, increases the environmental load and is costly to dispose of. To solve the above problems, we applied the hazard analysis and critical control point system (HACCP) to the management of wastes generated from endoscopy. First, the wastes in three hospitals were quantified. The number and weight of waste per case differed significantly among the three hospitals. Second, HACCP was applied to the endoscopy unit of Hospital X for a year. Wastes were segregated into five types and weighed. We found that 25.8% of ‘infectious waste’ was in fact ‘non‐infectious waste’ and ‘non‐infectious plastic waste’. The numbers of needles and needle caps did not correspond in two occasions (needle‐loss rate: 0.42%). Bacterial counts of the waste container were determined to investigate infection hazard. The counts were 0 cfu/cm² in all examinations except one occasion. The waste control manifests were reviewed, and all entries were consistent with the waste sent for disposal. In Hospital X where implementation of HACCP was attempted, reduction of environmental load and cutting of disposal cost are anticipated by changing the categories of waste segregation. The results suggest that hospital wastes should be managed more safely by HACCP.     

Experience and the unexpected: risk and mitigation issues for operating underground storage silos for coal-fired power plant

Observed autoignition events and extinguishing the resulting smouldering fires in an underground storage system of a coal-fired power plant have provided insight into the array of contributing variables, and some experience on quantifying the risk with alternative scenarios of event initiation, progress and potential mitigation. Although the first attempts to quantify the risk suggest high sensitivity to the sequence of action taken after fire alarm, and no similar storage sites really exist, some recommended preventive, corrective and other mitigating activities can be at least partly defined and improved by using the cumulative experience and parallel efforts in other closed or underground storage sites. However, there are also so-called black (or at least grey) swans: unexpected events for which the facility may be poorly prepared for. In the case of the underground storage silos, such an event was experienced when incoming cold coal during a harsh winter season froze the sewer system that normally protects the stored coal from seepage water. With blocked normal bypass, the seepage water found its way to the coal silos and created large clumps of icy coal that blocked the coal conveyors. Although freezing weather is not unusual at high-latitude power plants, the common methods to combat freezing of coal are mainly useful for open storage sites and above-ground transport. Options for mitigation are discussed, as well as the event chain leading to an event that had never previously occurred. The case is discussed from the point of view of options to prepare for rare or unforeseen events.     

The new monetary and financial initiatives: Finance regaining its position as servant of the economy

Alternative financial and monetary innovations constantly multiply. Following major financial crises, propositions abound in an attempt to build new monetary and financial tools that break with conventional approaches; the aim is to “do differently.” Rather than official institutions, it is the general public – through the creation of communities – that takes charge of the issue, and thus initiatives fall within a bottom-up approach. But even more striking than the fact that this phenomenon is driven by economic actors is that all these initiatives – these financial innovations – reveal and even embody a real challenge to the conventional financial system, and directly criticize its functioning. Indeed, all are carriers of messages, values, etc. Curiously, most of the critics do stress the reality of finance and rehabilitate it in its economic and social role: that of being the servant of the economy.     

Pension Funds and the U.K. Economy

Abstract

The paper considers the impact of U.K. defined benefit (DB) pension plan unding and investment on the U.K. economy. It suggests that many conventional theories are based on incomplete or inconsistent economics. In particular, the author suggests that:

? An economy cannot really gain competitive advantage from high returns on the domestic assets in which pension funds invest.

? DB liabilities are essentially similar for most schemes and can be closely matched with bonds.

? Funding pension liabilities has no primary impact on individuals’ consumption and saving or on firms’ capital investment.

? Pension funds are not natural investors in the equity of new ventures.

The conclusion of the paper is that the most significant impact of pension funds on the U.K. economy relates to the costs imposed by extreme mismatching between their financial assets and liabilities. The author argues that such risks can, in essence, “crowd out” entrepreneurial risk. He asserts that the U.K. economy would gain from greater focus on the matching of these assets and liabilities, and that the best way to stimulate enterprise is by eliminating the frictional costs in the economy arising from current practices.     

Citizens,technology and the NPM movement

ABSTRACT

In the modernization of the state, NPM ideas are presumed to offer governments certainty in the face of major unknowns. The reliance of NPM on information technologies is presented by governments as underlining this potential for certainty. However, this presumption of certainty is elusive in practice. Government pursuit of NPM transformational policies aims to make efficiency savings and cost reductions, but this may create new uncertainties for citizens, particularly because of the unintended consequences of the implementation of new forms of technology.     

The Effect of Labor Market Demand on U.S. CEO Pay Since 1980

This paper shows that the rise in U.S. chief executive officer (CEO) pay from 1980 to 2003 is only partially explained by competition for profit‐producing talent in the labor market. This conclusion is obtained by removing unintended data biases from tests of the only theoretical model in the literature that relates labor market competition (measured by large firm size) to CEO pay level. When the biases are removed or minimized, no more than 33% of the 600+ percentage rise in large‐firm CEO pay since 1980 is explained by a corresponding increase in large firm size.     

Model misspecification,Bayesian versus credibility estimation,and Gibbs posteriors

ABSTRACT

In the context of predicting future claims, a fully Bayesian analysis – one that specifies a statistical model, prior distribution, and updates using Bayes's formula – is often viewed as the gold-standard, while Bühlmann's credibility estimator serves as a simple approximation. But those desirable properties that give the Bayesian solution its elevated status depend critically on the posited model being correctly specified. Here we investigate the asymptotic behavior of Bayesian posterior distributions under a misspecified model, and our conclusion is that misspecification bias generally has damaging effects that can lead to inaccurate inference and prediction. The credibility estimator, on the other hand, is not sensitive at all to model misspecification, giving it an advantage over the Bayesian solution in those practically relevant cases where the model is uncertain. This begs the question: does robustness to model misspecification require that we abandon uncertainty quantification based on a posterior distribution? Our answer to this question is No, and we offer an alternative Gibbs posterior construction. Furthermore, we argue that this Gibbs perspective provides a new characterization of Bühlmann's credibility estimator.     

Defining the proposed factors for small business online banking: Interviewing the IT professionals

Small business customers that use electronic services are potentially more profitable than those who do not. ¹ For banking and financial institutions, understanding small business customers' online behaviours and preferences will be one of the key drivers to successfully reach this segment efficiently and economically. Following a proven construct development methodology, this preliminary study completes the first steps by conducting interviews with information technology professionals. These information technology professionals were directly involved in the support of websites operated by several large banking organisations located in the southeastern United States. The information gathered from the subject group provides a foundation for the discussions as to how those organisations support, or fail to support, the delivery of electronic banking to small businesses, factors are proposed to define the construct of what constitutes successful small business online banking relationships.     

First steps in developing an automated aerial surveillance approach

Partners in emerging risk representative application (ERRA) A3 ‘Emerging risks related to the industrial use of automated and un-manned surveillance of industrial infrastructure’ develop a set of new technologies to automate aerial surveillance by collecting images with a drone and automatically processing them to identify threats to buried oil and gas transmission pipelines. Progress on two aspects is presented, on one hand, technology development, and on the other hand, dealing with the emerging risks associated with these new technologies. Technology development covers three functions assembled in a workflow:

? Image collection via a light drone with an autonomous navigation system and image geographical positioning system (GPS) referencing capabilities.

? Image automated pre-processing: image assembly and georeferencing.

? Threat detection: image analysis by change detection is performed using Definiens software for identifying external interferences like construction work and excavations threatening the pipeline.

This set of technologies is perceived as an emerging risk that is appraised from several points of view:

? Technology: unmanned aerial vehicle (UAV), image georeferencing and assembly, change detection for threat identification.

? Human and Organisational and Communication: investigate the acceptance of this technology by the population and local authorities.

? Regulatory: check conditions that will ensure acceptance of operational use of light drones in some European countries.

? This general approach is needed to ensure both technology optimisation and the shortest path to reliable practical applications.