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Volcanic eruptions are rare but potentially catastrophic phenomena, affecting societies and economies through different pathways. The 2010 Eyjafjallajökull eruption in Iceland, a medium-sized ash-fall-producing eruption, caused losses in the range of billions of dollars, mainly to the aviation and tourism industries. Financial risk transfer mechanisms such as insurance are used by individuals, companies, governments, etc., to protect themselves from losses associated with natural catastrophes. In this work, we conceptualize and design a parametric risk transfer mechanism to offset losses to building structures arising from large, ash-fall-producing volcanic eruptions. Such a transfer mechanism relies on the objective measurement of physical characteristics of volcanic eruptions that are correlated with the size of resulting losses (in this case, height of the eruptive column and predominant direction of ash dispersal) in order to pre-determine payments to the risk cedent concerned. We apply this risk transfer mechanism to the case of Mount Fuji in Japan by considering a potential risk cedent such as a regional government interested in offsetting losses to dwellings in the heavily populated prefectures of Tokyo and Kanagawa. The simplicity in determining eruptive column height and ash fall dispersal direction makes this design suitable for extrapolation to other volcanic settings worldwide where significant ash-fall-producing eruptions may occur, provided these parameters are reported by an official, reputable agency and a suitable loss model is available for the volcanoes of interest. [ABSTRACT FROM AUTHOR]

Volcanic eruptions are rare but potentially catastrophic phenomena, affecting societies and economies through different pathways. The 2010 Eyjafjallajökull eruption in Iceland, a medium-sized ash fall producing eruption, caused losses in the range of billions of dollars, mainly to the aviation and tourist industries. Financial risk transfer mechanisms such as insurance are used by individuals, companies, Governments, etc. to protect themselves from losses associated to natural catastrophes. In this work, we conceptualize and design a parametric risk transfer mechanism to offset losses to building structures arising from large, ash fall-producing volcanic eruptions. Such transfer mechanism relies on the objective measurement of physical characteristics of volcanic eruptions that are correlated with the size of resulting losses (in this case, height of the eruptive column and predominant direction of ash dispersal), in order to pre-determine payments to the risk cedant concerned. We apply this risk transfer mechanism to the case of Mount Fuji in Japan, by considering a potential risk cedant such as a regional Government interested in offsetting losses to dwellings in the heavily populated Prefectures of Tokyo and Kanagawa. The simplicity in determining eruptive column height and ash fall dispersal direction makes this design suitable for extrapolation to other volcanic settings world-wide where significant ash fall producing eruptions may occur, provided these parameters are reported by an official, reputable agency, and a suitable loss model is available for the volcanoes of interest. [ABSTRACT FROM AUTHOR]