Monday, December 10, 2007

How's the Weather - Model?

Today we begin with the weather forecast but not just any weather forecast mind you. First off is this story from Reuters which proclaims our property and casualty insurance rates in the US will remain high due to the massive hurricane that is surely coming to destroy us all. As a result, the article concludes our P&C rates will continue to increase. So proclaims the popular press which by the way has never met a scientific story on global warming and Hurricanes they failed to butcher.

So what's so complicated about the long range weather forecast? Easy, these high priced models that are periodically publicly released (and butchered) aren't really worth the paper Reuters wrote the story upon:

"One big problem is that catastrophe models are not reliable predictors of when or where a monster hurricane is going to strike, according to Karen Clark, vice chair of AIR Worldwide, one of the leading modeling firms.

“A model is just that—a model. It is still based on many simplifying assumptions, with a high degree of uncertainty,” she said. “It can tell you, given where you have your insureds, what the maximum probable loss would be should a storm of a certain strength hit a certain area, but the question of frequency is more vexing.”

However, she noted that “while there is no consensus at all on climate change and the frequency of hurricane landfalls, most scientists agree that when storms do hit these days, their intensity is likely to be greater and will cause more damage.”

So here, in the National P&C Underwriter, an insurance industry trade publication, we discover a deeper truth about these climate models and as borne out by the last two Hurricane seasons which have also come complete with prediction of coastal doom; namely that weather models are notoriously unreliable predictors of when or where a windstorm may strike.

This basic fact does not stop insurers, especially those in reinsurance from paying big bucks for weather forecasting as most have their own in house forecasting units like this one. We submit that despite the limitations of weather modeling there has to be good reason the insurance industry keeps such a close eye on the weather. However, insurance seems to be one business that profits handily even when they completely miss on the extended forecast like these past two years.



Tin Lizzy said...

Indeed my good man Lizzy's assessment is similar. Yallpolitics is engaged in a twisted circle jerk with David Rossmiller.

Lizzy predicts they will be cocooned in an envelope of donut glaze upon ejaculation.

Promise said...

How about starting a glossary here for folks that don't "speak" insurance?

Comments will provide a way to ask for a definition or add one to the list.

Sop811 said...

I agree we could use such a resource here and we can build one over time. in the meantime you'll find wiki gives pretty good definitions. is also a good resource.

Here are some key terms with links:
Multiline Insurance -

Reinsurance -

Cat bonds -

Promise said...

In the years since Katrina, it appears these models are better predictors of monster profits than monster hurricanes. Do you agree?

Sop811 said...

I do agree with that, the industry profitability numbers speak for themselves P. No matter the year or the severity of the catastrophie (Cat), the one constant has been the ability of insurers to profit.