Funding allocations for disaster preparation considering catastrophe insurance

In disaster management, material reserves are defined by uncertain demand. Overstock may lead to wasted funds, while shortages increase purchase pressures in the post-disaster environment. The funding allocation for pre disaster reserve and post disaster procurement is a dilemma. Catastrophe insurance is intended to moderate this dilemma. The relief organization is intended to insure against the surge in demand that accompanies disaster, which may require it to purchase a large amount of materials urgently post disaster. This study develops a funding allocation optimization model for disaster response planning and preparedness, with the added leverage of catastrophe insurance. The goal of this paper is to determine the relief organization's optimal allocation of funds for material reserve, insurance premiums and possible post-disaster purchases to minimize long-term total relief costs. We model the problem as a two-stage robust optimization model designed to minimize the overall costs, and adopt an efficient column and constraint generation algorithm to calculate it. Using data from the flood disasters of Heilongjiang, China, some of the scenarios indicate a reduction in the government's relief costs by adopting insurance instead of applying option contract or just returning unused relief supplies. Our study confirms the advantages of catastrophe insurance in leveraging capital, and reducing disaster material overstocks and insufficient risks.