Karen Clark, one of the founders of the catastrophe modeling industry, is among the panelists sounding the alarm at Advisen Property Insights Conference about the insurance industry's reliance on the very models she helped invent.
Those models are used by insurers to calculate the probability of major losses, and are also used by ratings agencies to evaluate the creditworthiness of insurers and rate catastrophe bonds. (And ultimately by investors that buy insurance stocks or cat bonds.) But Ms. Clark argues that the models can be used incorrectly to give a false sense of certainty when all they can do is provide a rough estimate of losses.
"We shouldn't be talking about modeling the risk. We should talk about managing the risk," she says.