Karen Clark & Company unveils new convective storm model

New storm model can help insurers better price their catastrophe products and reinsurance

Karen Clark & Company unveils new convective storm model

Catastrophe & Flood

By Lyle Adriano

Karen Clark & Company (KCC) has released the first version of its Severe Convective Storm (SCS) Reference Model, which would allow insurers to better project the risk certain weather events carry.

The model is based on advanced scientific modeling techniques, a release said. The data has also been validated with high resolution insurer claims data.

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Traditional catastrophe models typically underestimate the SCS loss potential for insurers. This can be troubling, as SCS losses have been trending upward and dominating US insured catastrophe average annual losses - annual SCS losses have consistently exceeded $10 billion for the past several years. In 2011 alone, insured losses exceeded $30 billion, and two isolated weather events caused $7 billion in losses each.

KCC’s SCS Reference Model is a multi-peril model, wherein the hazards of hail are simulated separately from tornadoes and straight-line winds. The model shows that hail trumps the SCS risk, accounting for almost 70% of annual losses on average.

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The model includes more than 100 historical SCS events – on top of a stochastic catalog of over 33,000 events used – for pricing and reinsurance decision making. These historical events allow insurers to benchmark the model against their actual losses to verify the precision of the model.

“There has been significant industry demand for a more credible and accurate SCS model,” said KCC president and CEO Karen Clark. “While this peril does not pose a solvency threat to most insurers, claims from severe thunderstorms eat away at earnings each year, and our clients want to make sure their rates reflect the most up-to-date science and their actual loss experience. We’re pleased to release this new model that can accurately reproduce SCS losses.”

“When we reviewed the first set of results from the KCC model, we were very impressed,” commented American Strategic Insurance director of business analysis Morgan Savage. “We were never confident in the loss estimates from the other models because the numbers are so different from our actual loss experience. We’re very pleased with the KCC SCS model and are already using it for our growth strategies in SCS prone areas.”

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