Page 26 - Insurance Times August 2019

Acts of Men Cat Perils of Terrorism, Sabotage, Risks,
Malicious Damage are even greater challenges. While Acts
of God Perils cause destructions, yet there is Concern of
Nature behind all destructions. Whereas Men destroy
intelligently with all moral hazards and no humanitarian
concern. The worst example is the WTC Attack on 11th
September, 2001.

Terrorism has been a greater challenge with increasing
frequencies and severities. Can we have a Cat Modelling to
cover Terrorism?

Cat Models for Earthquakes and Hurricanes are probabilistic
and reliable when these are based on CRESTA Zones.
Rethinking Cat Modelling After Last Year's Disasters' by
Elizabeth Bolsfield.
CAT MODELLING: Cat modelling is at once an Art and
Science.
After Hurricane Katrina in July 2005, the Hurricane Harvey
caused highest Hurricane Losses amounting to US$ 125
It is a process of using computer assisted calculations to
estimate NAT CAT Losses arising out of specified perils of Billions.
earthquakes and hurricanes. Experts of Actuarial Science,
Meteorology, Seismology and Engineers apply their In June 2018, S&P Insurance conference in New York
technologies and visions behind Cat Modelling of Risks. panelists discussed the Cat Modelling Process which raised
serious concerns after the Hurricane Harvey losses. Rainfall
of 50 inches in some areas caused damages which were
Insurance Company's Team of Underwriters monitor
exposures of their NAT CAT Portfolio of Risks and also never considered as serious exposures in the zones affected
generalize whether Rating Levels of NAT CAT Risks are by the Rainstorms and Floods causing enormous property
ADEQUATE. It has never been ADEQUATE in practice due to damages.
Free Competition.
Mr. Steven Kelner, the M.D. and head of US/Canada
Cat Modelling centersaround exposures of specific perils of Analytics at Guy Carpenter & Co. LLC, as a panelist on S&P
earthquakes, hurricanes, rainstorms. Actual experience of Conference observed: "You can run the models all day. But
Hurricane Katrina (2005) revealed Non-Modelled Cat Perils role when you go down to Houston and look at neighborhoods,
in causing unexpected Insured Losses. The 11th March, 2011 the whole neighborhood was deemed not flood exposed
losses of Tohoku Earthquake in Japan and resultant Tsunamis because the maps weren't accurate and the data wasn't up
further revealed role of Non-Modelled Cat Risks. Same thing to date. There is a lot of complexity in getting a Cat Model
happened in respect of Thai floods of June-July 2011. to run accurately."

These events revealed the facts that 'Cat Modelling' are not Another panelist John Langione, Chief Risk officer of QBE
and cannot be perfect guidelines because climate changes North America, has observed: "Cat Models are great, but
have been unpredictable. they are the part of the process."

However climate changes and AOG Perils causing NAT-CAT The challenge for the Insurance Industry consists in
Events have been full of uncertainties in frequencies and recognizing the importance of using Cat Modelling software
severities, man-made catastrophes of Sabotage and for pricing but not becoming 'overly reliant' on the Cat
Terrorism are even worse. Terrorists have been getting Models. The historical elements behind Cat Models are
weapons of destruction. Even weapons of mass destructions helpful to understand actual exposures of risks.
are dangerously getting within their reach! Underwriters Team in an insurance company must use a
'Sixth Sense' and a strong common sense after using Cat
On July 16th, 2008, the insurance journal of New York Models as guidelines to write and underwrite AOG Perils
contained an interesting article 'Insurance Industry is both Modelled and Non-Modelled.

26 The Insurance Times, August 2019