Risk Models Fall Short On Contingent Damage Predictions

Risk modeling has done a very good job at prediciting direct damage estimates from natural disasters and other claims. The models however have fallen short when trying to predict contingent damages. The last few years has been a real eye opening experience for insurers and reinsurers. The Japanese earthquake and the midwest weather catastrophes have wrought billions of  dollars in contingent damages that  risk models did not predict. Industry experts say the models can't be improved until the industry gets a real handle on contingent liabilities. The world is more connected today and supply chains and dependency is now world wide. This global web will require new studies and products to deal with this increasing risk. Not until the industry gets a new understanding of contingent damages will the modelng software get better. Until then insurers will have to charge rates for business interuption coverage without the use of computer software. Until next time be careful out there and know your risks. K

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