Lockton: Holes in Models Exposed by Superstorm Sandy

Catastrophe models will continue to be exposed by events like Superstorm Sandy because they can fail to contemplate all possible sources of loss, says Lockton Cos.

A report by Jeff Tennis, manager of catastrophe analytics at Lockton, says model deficiencies are visible “particularly for areas with a limited historical record,” but he adds it “would be naïve to fully discredit” these loss-prediction tools.

Tennis suggests simulations using the hurricane model by Risk Management Solutions (RMS) were not lacking in that the firm modeled 2,300 storms in the area where Sandy hit and 62 storms produced storm surge of 16-feet or greater—the surge height in some areas during Sandy, such as on Staten Island, N.Y.

However, Tennis says, the simulated storms to produce such a surge in the model were a Category 3 or greater. Sandy was a Category 1, and made landfall as a tropical storm.

"RMS claims its model represented Sandy's storm surge reasonably well, but has provided few details supporting this claim," Tennis says. 

Additionally, inland flooding in not captured by the RMS model, Tennis adds.

The models also miss the mark on indirect losses such those related to business interruption, which, in an area like New York, is a big driver of loss—maybe more so than direct losses.

The point is not that the models are useless. Tennis says models “are still a useful tool to evaluate ‘how bad bad can get.’”

The point is insurance professionals, “must recognize model deficiencies and supplement where needed.”

Read Tennis’ report HERE.

RMS says insured losses from Sandy will be between $20 billion and $25 billion. In a December interview with PC360, the modeler says Sandy verified its model’s approach to estimating damages from wind and from storm surge.

Catastrophe modelers AIR Worldwide and Eqecat also released insured-loss estimates from Sandy. AIR raised its estimate of insured losses from Superstorm Sandy to between $16 billion and $22 billion after releasing a much lower range very soon after the storm. Eqecat says insured losses will total $10 billion to $20 billion.

Industry executives and analysts have since predicted insured losses will at least reach the high end of RMS' estimate, if not exclipse the prediction.

Comments

Resource Center

View All »

Integrated Content & Communications: A Key Business Issue For Insurers

Insurers are renewing their focus on top line growth, and many are learning that growth...

High Risk Insurance Coverage in the E&S Market

Experts discuss market conditions, trends and projected growth in a rapidly changing niche.

Top E-Signature Security Requirements

This white paper covers the most important security features to look for when evaluating e-signatures...

EPLI Programs Crafted Just For Your Clients

Bring us your restaurant clients, associations and other groups and we’ll help you win more...

Is It Time To Step Up And Own An Agency?

Download this eBook for insight on how to determine if owning an agency is right...

Claims - The Good The Bad And The Ugly

Fraudulent claims cost the industry and the public thousands of dollars in losses. This article...

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Get $100 in leads with $0 down!

NetQuote's detailed, real-time leads have boosted sales for thousands of successful local agents across the...

The Growing Role of Excess & Surplus Lines in Today’s...

The excess and surplus market (E&S) provides coverage when standard insurance carriers cannot or will...

Risk Management Report eNewsletter

Identify problems involving emerging risks, reinsurance, and business interruption with help from Risk Management Report - FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.