The NAIC retained Karen Clark & Company to conduct the study and produce the report which will include three sections - hurricane loss modeling, earthquake loss modeling and general modeling.
“Given the importance of catastrophe models in assessing insurance company exposure to financial loss, the NAIC requires a thorough expert analysis of various alternatives with respect to these models,” said Karen Clark, president and CEO, Karen Clark & Co. “We are thrilled to have been selected by this prestigious organization, and to lend our expertise to this ambitious effort.”
Karen Clark & Co. will determine the feasibility and cost estimates for creating a hurricane model to estimate residential losses nationwide, down to at least the ZIP code level, on an average annual loss basis, and for developing scenario catastrophes and aggregate losses for various return periods. The firm will determine whether a national hurricane model can be leveraged or adapted from existing models, such as the Florida Public Hurricane Loss Model and the HAZUS model. SPA Risk LLC will conduct a similar assessment for an earthquake model. Karen Clark & Company will also provide general expertise to regulators on the feasibility and costs of building a national catastrophe model, and guidance on proper evaluation of private catastrophe models.
“The increased use of catastrophe models creates a new challenge for insurance regulators, since the models play a significant role in a company’s rate-setting, underwriting, claims administration and overall financial solvency,” said Charles Scawthorn, Principal, SPA Risk LLC. “We look forward to working with Karen Clark & Company to help foster a better understanding of these challenges and the feasibility of building a national catastrophe model.”
The feasibility study is scheduled to be completed in mid-June. Karen Clark & Company will work with the NAIC to develop realistic timetables and cost projections based on the alternative approaches.
