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New frameworks, data sources redefining catastrophe models

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When it comes to assessing catastrophe risk management, the catastrophe models employed by insurers and reinsurers do not operate in a vacuum.

Indeed, in light of the record catastrophes losses that occurred in 2011, the ultimate utility of catastrophe models, as well as the ecosystem in which they operate, became a subject of much discussion within the insurance industry.

Accordingly, technology and service providers are updating their offerings to reflect insurers' more circumspect viewpoint.

On Tuesday, Boston-based catastrophe risk advisory firm Karen Clark & Co. announced the availability of a platform that enables insurance and reinsurance companies to leverage multiple internal and external models to craft a singular, customized view of the risks in their portfolios.

“Building a proprietary view of risk has become more important than ever after recent model updates and surprise events,” KCC CEO Karen Clark said in a statement. “Companies want a more open platform that enables them to utilize the scientific and engineering expertise of many organizations conducting state-of-the-art research around the world.”

The platform, RiskInsight, employs an open architecture and built-in tools that enable users to analyze their global exposures and risk concentrations from multiple angles and thereby better “own” their risks. Nicolas Papadopoulo, President and CEO of Arch Reinsurance Ltd., said his company would employ the new platform to complement its existing internal pricing and management analytics.

“We are heavy model users, but we value alternative approaches and tools that help us come to our own conclusions about our loss potential,” Mr. Papadopoulo said in a statement.

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In addition to improving the tools that improve the ability to glean insights from models, technology providers are working to improve the data used to populate catastrophe risk models. Jersey City, N.J.-based Insurance Services Office Inc., a unit of Verisk Analytics, announced a program to help commercial insurers get a better sense of the wind perils facing commercial buildings. ISO said its Enhanced Wind Rating Program would help underwriters better quantify a building's resistance and exposure to wind damage.

“Using wind-related building and exposure characteristics, insurers can more precisely identify, measure, and price exposures specific to the wind peril,” Beth Fitzgerald, senior vice president of ISO's Insurance Programs and Analytic Services division, said in a statement.

In addition to leveraging information from the hurricane and severe thunderstorm models of fellow Verisk subsidiary AIR Worldwide Corp., the program uses increasingly granular data collected by ISO field representatives since April 2011.

“The collection process involves the deployment of resources to identify and capture building characteristics that affect loss potential from wind,” Kevin Kuntz, assistant vice president of Verisk's Commercial Property division, said in a statement. “We also leverage our unique data sets such as the Building Code Effectiveness Grading Schedule, which provides insight into the adoption and enforcement of building codes for specific risks.”