Some of the world’s top hurricane scientists met with insurers and delegates at Princeton University recently to talk about the advances being made in modelling a category three hurricane blasting through the New York metropolitan area.

The gathering, organized by the Willis Research Network (WRN), heard how a perfect storm and its accompanying storm surge could wreak residential losses of between $36 billion and $140 billion.

The wide range of loss estimates reflects 89 track variations and the sensitivity of using differing assumptions in calculating damages. Some disaster scenarios envisaged storm surges, coinciding with a high tide 10ft higher than Manhattan’s sea walls.

Rowan Douglas, chairman of WRN, acknowledges that the wide range of possible loss outcomes demonstrates how much variance still exists in models—but he says that model technology is improving all the time.

“The insurance industry has always used historical data to form the basis of the event sets that drive insurance industry loss models,” he told lloyds.com. “But today’s climate is more dynamic than previously and it means that we are now at the limits of the value we can extract from historical data alone.”

But, as the Princeton conference delegates heard, climate scientists are developing physically based models of the planet that simulate the world’s oceans and atmosphere. They’re called General Circulation Models or, sometimes, Global Climate Models.

“We’re entering a new era whereby we can begin to assess the regional impacts of a changing climate,” he says. “At the Princeton seminar we discussed how this emerging science will inform future cat models the insurance industry uses in its catastrophe risk management.”

Representatives from the leading model shops AIR, Eqecat and RMS explained to the conference how they were actively incorporating the latest scientific thinking into their products.

“We’re often asked by clients what is the best model to use,” Rowan Douglas says. “But there is no single ‘best’ model. Our philosophy is to take an ensemble approach by obtaining more than one modelled output.”

Tags: cat models, Hurricanes, Natural catastrophes

This entry was posted by Garry Booth on Thursday, April 16th, 2009 at 12:53 pm and is filed under Insurance Commentary.