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Evidence that catastrophe models may not be as accurate as some carriers might expect has one insurance broker cautioning insurers that they need to examine their loss estimates more closely.

Catastrophe risk modeler EQECAT has dramatically changed its estimate of insured losses from the Tohoku, Japan earthquake to between $22 billion and $39 billion.

Reinsurance brokerage firm Holborn says estimates of insured losses from the Tohoku, Japan earthquake and tsunami in March are off by as much as $23 billion.

Catastrophe models have become so ingrained in the insurance industry that a model revision can have profound effects on all aspects of the business, especially when loss results for some books of business can double.

In the wake of a magnitude 9.0 earthquake that struck Japan on March 11, with insured-loss estimates reaching as high as $35 billion, analysts and rating agencies fell on either side of the debate about whether the event will cause a turn in the long-running soft-market cycle.

Recent revision to a cat model could result in double loss indications for some portfolios. But reinsurers may be able to absorb the model changes without huge increases because they already thought the models were coming in low.

An overview of how catastrophe models are used in the industry.

A change to a catastrophe model can influence the level of reinsurance purchased by companies and impinge on the rating process, but the extent to which the latest revision announced by one modeler affects either is not specifically clear.