A major threat of lowered financial ratings and soaring reinsurance rates is lurking for workers' compensation insurers as a result of flawed catastrophe modeling data and process difficulties. Above all, there is the possibility of ticking time bombs within otherwise profitable portfolios, which might produce surprising loss amounts that could threaten the financial stability of insurance companies.

The 9/11 terrorist attacks concentrated the minds of insurers on the truly gigantic losses that are possible in workers' comp and underscored the need for accurate catastrophe modeling.

However, while much work has been done over the past six years by commercial modeling firms and some insurers to develop the modeling discipline, the accuracy of these models is being hampered by poor data quality, which is a growing concern within the industry.

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