New risk management tool could fill in the gaps left by conventional catastrophe models

Catastrophe Risk ModelKaren Clark & Company, a catastrophe management firm serving the insurance industry, has developed a new tool that could help insurers manage their risks in a changing world of natural disasters. The past two years have been the most catastrophic years in history in terms of insurance. Natural disasters from both 2010 and 2011 have cost the industry billions and have left it staggered. Insurers are hoping that 2012 will not be as disastrous as its predecessors. If it is, however, they will have a new risk management tool at their disposal.

The new tool from Karen Clark & Co. is called Characteristic Events (CEs). The tool uses probability of natural catastrophes in disaster prone regions of the world to map future events. The company claims that the tool can fill the inherent gaps that exist in conventional catastrophe models and management techniques, if it is used properly. The firm has worked with dozens of insurance and risk management companies over the course of several years to develop the new tool and hopes that it will bring some degree of stability to the insurance industry.

Catastrophe models have been a major concern for property/casualty insurers recently. After acclaimed risk modeling agency RMS released their new hurricane model that made sweeping changes to predictions of losses in the U.S., insurers have been keen to find ways to manage risk as it begins to grow more volatile. The new Characteristic Events tool may help in this instance by giving insurers a better understanding of how these events will impact them and what they can do to mitigate damage.

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