Every risk manager knows that knowledge is power. And for an increasing number of risk managers, a new source of knowledge is one in which underwriters have relied on for quite some time--catastrophe modeling.

By working through their brokers, risk managers are using cat models to crunch data on their property exposures and present that data to underwriters during renewals. In some cases, risk managers are approaching the modelers directly to better understand the nature of their exposures and their options for dealing with them (see story, page 17).

The trend has been driven in part by unsettled conditions in the commercial property market following the record hurricane losses of 2005.

"We have definitely been doing that more frequently than we used to," said Jill Dalton, managing director of Marsh Inc.'s property practice in New York. "We're suggesting it often. Especially after Hurricane Katrina, the more information you have about a risk, the better off you are. We recommend it to help clients have a better understanding of their exposures, especially when the market was hardening after Katrina. If clients had to make decisions about lower limits or higher deductibles, this information really was helpful in the decision-making process."

"Insurance companies do their own modeling," said Ms. Dalton. "Sometimes the information they have for their models has different results from our model's results and, depending what the difference is, we can use the information to help negotiate better terms and conditions."

"We do it as a matter of course for our prospects and clients," said Gary Marchitello, property practice leader of Integro Ltd.'s property practice in New York. "We think it's essential."

"If our clients are going to be modeled by the underwriting community, we think they need to be armed with the same measurement tool," he said.

John Phelps, director-business risk solutions for Blue Cross & Blue Shield of Florida in Jacksonville, said his experience with cat modeling began with a discussion about capacity with his broker, Marsh. He said as they discussed how much of his property line would actually be subscribed, "they said, we can model" the Blues' exposure using an RMS program.

The result was an approximately 60-page report that showed that even under a worst-case scenario, "it would take 70,000 years for us to get anywhere within shouting distance of insured value," he said.

Mr. Phelps noted that underwriters do their own modeling, but don't always share details with the customers. The Blues wanted to be able to present their own information when negotiating the property renewal.

When presented with the Blues' analysis, the underwriters "understood, they agreed. We got premium that was several thousand dollars less than what we paid last year," said Mr. Phelps, who added that some of the decrease reflected market conditions. "But what's more important is that it defused any argument" that might have arisen in an effort to raise rates.

A consultant agreed that modeling is valuable for risk managers.

"I could see for relatively large organizations that have multiple properties, this would certainly be a service that would be of interest to them," said Vincent Burke, managing director-advisory business services at Devon, Pa.-based SMART Business Advisory & Consulting L.L.C.

Underwriters are using models as well, and if the issue were one of price negotiation, risk managers would certainly want to compare the outcomes, Mr. Burke said.

Having good data is key, experts say.

"Models are only as good as the inputs that are provided for the analysis," said Aaron Davis, director of Aon Corp.'s national terrorism and property resources unit in New York. "The greater the...detail regarding the underlying exposure, the more benefit."

"You need to make sure that the model is modeling accurate data," said Integro's Mr. Marchitello.

A typical report would start with a description of physical assets that are being modeled--buildings, construction type, occupancy, characterization of the contents--and of the business interruption exposure, said Bill Keogh, Hackensack, N.J.-based group executive-global client development for Newark, Calif.-based Risk Management Solutions Inc. The report would include mapping and a description of the financial structure of any polices that are being modeled, he said.

It also would include a "rich amount of output" from the model that would help describe the expected cost of the catastrophe exposure, the uncertainties involved, and assessment of the premium charged and other financial information, he said,

"We try to keep it short but do a brief write-up of our interpretation," said Ben Fidlow, principal and head of Integro's actuarial and analysis practice in New York.

"Insurers are always going to err on the conservative side," Mr. Fidlow said. "The output you're going to see is very client-friendly. It's also broker-friendly."

"What we are providing the market that is of the greatest value to the client is the raw data on their locations, so that the markets can best model (the exposure). Without that input, the markets are going to take whatever they can find and many run a very generic analysis for the clients locations," said Bob Siner, director of Aon Risk Services Natural Hazards Group in Algonquin, Ill.

"The value the customer can get out of cat analyses is proportional to the effort the broker or consultant running the analysis puts into developing the service," said Mr. Siner. "The typical analysis programs do not give up more than the very basic results easily. Considerable effort is needed to build databases that dig deep into the input/output tables and pull results together so that extended results can be prepared in a reasonable time."

"It is a very crucial tool for assessing exposures--flood, quake, windstorm--identifying what the appropriate loss limits should be," said Aon's Mr. Davis. The prevailing benchmark for most of the Fortune 1000 is to buy insurance to cover a 1-in-250-year event to a 1-in-500 year event, "although vast majority is purchasing to a 1-250-year event," he said.

Marsh's Ms. Dalton said that underwriters generally welcome the modeling information. "The more information they have, the happier they are," she said.

"It seems a no-brainer that you need to get a peek in the black box," said Mr. Marchitello.