The first generation of catastrophe modeling technology, based on proprietary “black box” models produced by a few vendors, is 25 years old. It’s now generally known that despite significant investment, these models will never be accurate. At least for the foreseeable future, the models will provide only rough estimates of catastrophe losses because there is so little reliable data in most peril regions.
Executive SummaryOpen platforms enable insurers and reinsurers to incorporate and test the impacts of new scientific research much faster than using the traditional vendor models. Karen Clark explains how these new advanced tools are already being used for greater visibility into the key drivers of profit and loss and to gain competitive advantage.
Of course, the model vendors know this fact, which is one reason they’re actively encouraging companies to “own the risk” and not rely on their models. Because model differences and volatility are driven primarily by changing assumptions and not new science, insurers and reinsurers are expected to develop their own views of risk that they fully understand, control and can explain to internal and external stakeholders, such as regulators and rating agencies.
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