Since Hurricane Andrew in 1992, hurricane catastrophe models have become an industry standard. Today, primary insurers depend on them for rating and underwriting, reinsurers for pricing, and rating agencies and investors for measuring risk exposure–among many others uses.
Because of the impact on rates and reinsurance costs in coastal areas, coupled with their use of proprietary intellectual property, hurricane models have been targeted by critics, who charge they are "black boxes" used to inflate insurer and reinsurer profits.
The companies that developed the models–AIR Worldwide, Risk Management Solutions and EQECAT–have gathered and analyzed years of data on hurricane behavior and insurance claims, and translated this information into software packages that simulate hurricane losses. They guard this work rigorously from each other and other competitors.
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