Lockton Report Reveals What Catastrophe Models Didn't Show About Superstorm Sandy

KANSAS CITY, Mo., Feb. 6, 2013 /PRNewswire/ -- Two days after Superstorm Sandy made landfall on Oct. 29, 2012, catastrophe modeling firms EQECAT and AIR estimated that insured losses would reach $10 to $15 billion. Two weeks later, RMS and Swiss Re both estimated Sandy's insured losses of $20 to $25 billion. A new paper from Lockton explores whether an event like Sandy was considered in catastrophe models before it happened, and why those models often fail to consider all possible sources of loss.

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The article – "Catastrophe Models: Learning from Superstorm Sandy" -- explains what can be done to supplement modeled outputs that don't consider the indirect losses caused by power outages and other systemic problems that interrupt business activities.

Sandy devastated the electrical and transportation network throughout the Northeast U.S., generating substantial business interruption claims. Although catastrophe models quantify "direct" business interruption, incorporating business interruption losses into model estimates can be difficult. 

"Insurance policies can be so nuanced as to what covers a loss or when you can claim on those business interruptions," explained Jeff Tennis, manager of Catastrophic Analytics and author of the Lockton paper. The reality is, with events like Sandy, the indirect losses are significantly greater than the direct losses.

"Insurance professionals must recognize the deficiencies in catastrophe models and supplement where needed," Tennis said. When key drivers of loss are ignored, companies may go unprotected. Models provide valuable information, but they don't always provide a comprehensive view of catastrophe risk. That task falls to an experienced insurance professional.

The full article is available free at www.lockton.com or at http://www.lockton.com/Insights-And-Publications/White-Papers/Catastrophe-Models-Learning-from-Superstorm-Sandy

More than 4,450 professionals at Lockton provide 15,000 clients around the world with risk management, insurance, and employee benefits consulting services that improve their businesses. From its founding in 1966 in Kansas City, Missouri, Lockton has attracted entrepreneurial professionals who have driven its growth to become the largest privately held insurance broker in the world and 9th largest overall. Independent researcher Greenwich Associates awarded Lockton its Service Excellence Award for risk management for large companies. For four consecutive years, Business Insurance has recognized Lockton as a "Best Place to Work in Insurance." To see the latest insights from Lockton's experts, check Lockton Market Update.

SOURCE Lockton