When my partner, Vivek Basrur, and I started Karen Clark & Co. (KCC), we had no intention of building catastrophe models again. In fact, that’s the one thing we said we wouldn’t do.

Executive Summary

Without ever having made a conscious decision to build catastrophe models again, modeling pioneers Karen Clark and Vivek Basrur wound up doing just that at Karen Clark & Co. Here, Clark describes the driving force that is one of the necessary ingredients of innovation: a growing and irrepressible passion. Other factors that drive innovation forward at KCC are a guiding vision, a small and nimble team to implement it, and a totally immersed leader making sure an otherwise messy innovation process stays on plan.

But after a few years of working with dozens of insurers and reinsurers as independent expert consultants, we discovered there were important market needs not being addressed by the existing vendor models. For one thing, the model-generated loss estimates were not providing enough intuitive and operational information for CEOs and senior management. The volatility in loss estimates from model update to update posed challenges for underwriters, and model users had to develop resource-intensive processes around the models in order to understand what was inside.

In many instances, we found low confidence in the model-generated loss estimates, and we heard on too many occasions: “We don’t believe the numbers, but it’s the only tool we have, so we have to use it.”

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