The president and CEO of catastrophe-modeler Karen Clark & Co. explains why she's convinced “Characteristic Event Analysis” offers a more effective method of cat-loss estimation and preparation than the insurance industry's longtime focus on probable maximum losses.

In terms of what insurers need to be doing, what are the fundamental requirements for effective catastrophe-risk management?

After consulting with dozens of insurance and reinsurance companies over the past few years, we've found that insurers would very much like to have risk-management metrics with three fundamental qualities: consistency, transparency and operational ability. In order to effectively manage catastrophe risk, insurers need to fully understand the risk and how it's being measured for their specific books of business. Insurers would also like a tool that enables them to monitor the effectiveness of their risk-management strategies over time.