There’s a Better Way: Catastrophic Modeling

There’s a Better Way: Catastrophic Modeling
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With most eyes fixed firmly on the COVID-19 pandemic in 2020, the threat of a natural disaster may not be at the forefront of our collective minds, but it should be. In 2019, natural disasters caused an estimated $103 billion in damages worldwide. Hurricanes, wildfires, earthquakes, intense thunderstorms and other weather-related events all have the ability to devastate and cause massive amounts of damage.

From January to June 2020, the United States saw ten different weather-related disasters causing at least a billion dollars in damages according to NOAA, as well as Hurricane Isaias, which made its way up the east coast in August. Beginning in June and continuing through November, hurricane season could also bring even more devastating storms to the Atlantic region.

With all of this in mind, the importance of having an effective Catastrophic Modeling program is imperative when it comes to protecting your portfolio from potential disaster. 
 

What is Catastrophic Modeling? The Nuts & Bolts

A complete catastrophic loss plan begins and ends with data. Accurate, complete and validated data is essential to making critical decisions regarding the risk and insurance needs of your asset portfolio in the event of a severe natural hazard.

Introduced in the 1980s, Catastrophic Risk Models are designed to identify and estimate the financial impact of potential future losses on a property portfolio. These models discover where future catastrophic events are most likely to occur and the inherent strength of these events. With this information in mind, a Catastrophic Risk Model can then predict direct, indirect and residual losses. Once considered a luxury, a Catastrophic Risk Model is now an essential tool all organizations, especially those with a broad property portfolio along the east coast, should have in place to protect assets.

There’s a Better Way

RCM&D’s Data Integrity Risk Assessment is a comprehensive, data-oriented approach to the traditional Catastrophic Risk Model. While all Catastrophic Risk Models are highly sensitive to the availability and accuracy of data inputs, the absence of data or the lack of reliable data can lead to variations in the modeling that will result in the insurer opting to project and underwrite for the most extreme loss results. This could result in overestimating the exposure, leading to higher rates and a potential negative impact on market participation

By evaluating a standard SOV, we may find inaccuracies that could be impacting your results—things like miscoded building construction and any wrong addresses listed. Additionally, commonly overlooked issues such as an inaccurate secondary property modifier can have a significant impact on the catastrophic modeling or vulnerability rating reflected in the insurance premium for an exposure.

For example, a masonry building is incorrectly underwritten as having a common gable roof when it actually has a hip roof. Even if all other secondary modifiers or data points are reported accurately, the gable roof represents a higher exposure to wind damage or loss from high winds produced by hurricanes or derechos because of the wind’s upward pressure. This upward pressure on a gable roof poses a much higher risk of severe damage and could even pull the roof off of the building entirely. If the catastrophic model had correctly noted the building’s hip roof, which deflects wind much more efficiently than a gable roof, the catastrophic modeling exposure would be significantly lower.

The difference here is having a team that is willing to go the extra mile to identify, validate and correctly report all factors that go into a catastrophic modeling system. From the standard SOV to commonly overlooked modifiers that many property owners themselves may not even be aware of, an expert data integrity risk assessment results in the property being accurately underwritten, which may lead to cost savings that can be recognized year-after-year. 

Confidence in Your Catastrophic Loss Plan

Your organization should feel confident in its preparation for a catastrophic loss situation. Some of the benefits of this approach to catastrophic modeling include:

  • Reduced Underwriting Uncertainty 
  • More Informed Decision-Making 
  • Greater Understanding of Your Assets & Risks 
  • Year-After-Year Savings 
  • Identified Cost-Saving Property Enhancements 

Questions?

Talk to your trusted RCM&D advisor today to learn more about our Data Integrity Risk Assessment for Catastrophic Modeling.