CAT Modeling For Human Disasters

In January his company announced they had come up with a workers' compensation catastrophe model that deals with building destruction. "After the announcement I received 50 calls from people who wanted the modeling information," Mr. Virkud related.

He noted that "all companies are looking at workers' compensation losses more carefully now to get a handle on possible aggregations of loss in different areas."

The boom in business for the new model, he said, was comparable to AIR's first catastrophe model release after Hurricane Andrew in that "everyone was looking for a tool. It was a timely release to respond to a need that the industry had."

AIR said its model estimates injuries and fatalities, probabilistically calculating workers' comp losses for individual insurance policies or for entire portfolios based on the level of damage to buildings, the number and severity of injuries sustained by their occupants, and the average cost of treating injuries, given their severity.

Mr. Virkud said that the company used data from earthquakes and the 1995 bombing of the Alfred P. Murrah Federal Building in Oklahoma City.

Unlike modeling for natural disasters, however, factors such as where and when man-made catastrophes might occur are not generated because "we don't claim to be mind readers," Mr. Virkud said.

But, according to Mr. Virkud, insurance companies can use the new model to explicitly estimate workers' comp losses arising from terrorist attacks that result in building damage or collapse.

AIR, in addition to catastrophe modeling services, provides weather and climate data, and computer software solutions related to catastrophes including "CLASIC/2," "CATRADER," and "CATMAP/2″ to the insurance, reinsurance and capital market players.

AIR's models for natural catastrophes such as hurricanes, hail, tornadoes, other windstorms, flood, and earthquakes simulate losses from over 30 countries. The company's web address is www.air-worldwide.com.