Risk modeling on Superstorm Sandy was reasonably accurate for the perils of wind and storm surge, but still missed some key aspects of the event, especially contingent business interruption.
Those were some of the findings Jeff Tennis determined after reviewing the actual storm and storm surge with the results simulated by catastrophe modelers.
The three major cat models, said Tennis, manager of catastrophe analytics at Lockton, "probably all had the same or similar strengths and weaknesses," although he focused mostly on RMS, and not AIR or EQECAT.
"Where RMS or any model is weak is when you get to issues with business interruption, especially contingent business interruption or indirect loss," he said.
In addition, models also ignore losses due to "prevention of access to a facility (ingress/egress, civil authority) and infrastructure losses. Throughout the industry, there is agreement these sources of loss will be significant," according to his report, Catastrophe Models: Learning from Superstorm Sandy.
"Clients may have experienced significant loss even if their own properties aren't damaged," Tennis said.
And a new wrinkle is politics, he said. "There was significant political pressure to enforce the much smaller all other perils deductible rather than the hurricane deductible, so that political pressure can have a significant effect on the outcome."
For risk managers and insurers, the most important takeaway from the analysis is to "understand what goes into the models because it has a direct effect on what comes out, but also to contemplate what the models don't consider -- inland flood, contingent business interruption, things like that," he said.
Post Sandy, however, the quality of the data for the Northeast should be enhanced, he said.
--By Anne Freedman
April 12, 2013
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