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“You can run the models all day,” said panelist Steven Kelner, managing director and head of U.S./Canada Analytics at Guy Carpenter & Company LLC. “But when you go down to Houston and look at neighborhoods, there were huge neighborhoods where the whole neighborhood was deemed not flood exposed. And the whole neighborhood but a house or two was flooded, because the maps weren’t accurate; because the data wasn’t up-to-date.”

With this in mind, the industry will need to rethink its approach to cat modeling as it continues learning from recent natural disasters including hurricanes and wildfires, panelists agreed.

“There’s a lot of complexity in getting a cat model to run accurately,” Kelner said. “For example, I can turn [GPS] mapping software on, and it will tell me how long it will take to get from Trenton to Philadelphia at 5 p.m. But the mapping software doesn’t realize that at 5:45 p.m., there’s always a backup. So we need to still have common sense in our day-to-day.”

Panelist John Langione, chief risk officer at QBE North America, agreed, adding that “models are great, but they’re part of the process.”

The challenge for the insurance industry comes in recognizing the importance of using modeling software for pricing, while not becoming overly reliant on the models themselves and looking instead to historical elements to understand exposure and risk, said panelist Bruce Jones, executive vice president and chief risk officer at The Travelers Companies Inc.

“You have this sort of tug-of-war between actual experience and models and trying to make sure that as you’re thinking about it both from a pricing perspective and from a capital perspective, you do have a total view of what’s going on,” he said

Please enjoy the full article below;

https://www.insurancejournal.com/news/national/2018/07/16/495213.htm

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