While catastrophe modeling firms and insurers continue to work diligently to perfect their models, the recent spate of natural disasters underscores how much work is still to be done, Aon Benfield says.
With models crucial in influence everything from the setting of reserves to decisions regarding reinsurance purchases, the need to get modeling right is critical. Nonetheless, the London-based the global reinsurance intermediary notes the insurance industry has recently witnessed evidence of models both under and over estimating loss estimates. For example, models overestimated the actual incurred loss in last year’s Chile earthquake. In contrast, other models underestimated losses due to hurricanes during the past decade by a factor of two or greater.
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