CAT Modelers Boast of Improvements

Much of the discussion at the Cat Modeling 2008 seminar of the Reinsurance Association of America focused on what insurers and policyholders could do to better their use of catastrophe models, but talk also focused on how the modeling software was being improved to make it more accurate and useful.

By Matthew Brodsky

For instance, Risk Management Solutions Inc., the leading modeling vendor, is working on the "completeness" of its current solutions, according to Paul VanderMarck, its chief products officer. The goal is to provide clients with a solution that could give them the ability to completely quantify the risk to their overall portfolios.

"Flood is the last big frontier for a complete U.S. risk," he said during a talk with Risk & Insurance® at the annual RAA event in Tampa, Fla. A flood model, he added, is a few years away.

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Another "frontier" for modeling, said VanderMarck, is applying natural-CAT methodologies to other risks, such as terrorism, infectious disease and fire risk. RMS recently announced the release of its first-ever Account Fire Model. Previously, said VanderMarck, underwriters had to rely on historical experience, of which there is "not that much."

The Account Fire Model weaves together engineering best practices and property data down to the account level to allow underwriters and risk managers envisage just how bad a fire could get at a specific property.

Richard L. Clinton, president of vendor EQECAT Inc., spoke about how his firm sees growth opportunities in multiple areas as well. For starters, he sees EQE expanding its CAT models to cover a wider geography, including Eastern Europe, Latin America and some parts of China.

Clinton also mentioned EQE's Offshore Energy Model (released in 2007) as an example of the industry-specific models that could also broaden the vendor's offerings. The Offshore Energy Model can help energy companies better understand their offshore energy hurricane risk in the Gulf of Mexico, while factoring in the insurance products and practices in the marketplace.

CAT bond investors also need models tailored to their needs, said Clinton during a panel discussion on the future of the tools.

"The standard CAT model really doesn't work well for this industry," he said.

During the same panel, S. Ming Lee, president and CEO of AIR Worldwide Corp., discussed how models should help verify and benchmark the quality of the data being inputting into them, as well as provide solutions when data problems are detected.

"AIR is moving ahead on both fronts," he said.

MATTHEW BRODSKY is senior editor/Web editor of Risk & Insurance®.

April 1, 2008

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