Catastrophe Risk Management Technology
  • Why Cat Risk Modelling?
  • Who Use Cat Risk Models?
  • What Are Cat Risk Models?

    Potential consequences from non-life catastrophic events (cat risks) refer to those losses which are relatively of low-frequency but with high-severity events. Natural catastrophes, due to their unpredictable nature on the one hand, and the potential implications for the built environment and human activity on the other, have long caused disruption to communities and damage to economies. In addition to the short-term humanitarian and social ramifications, such events usually entail long-term economic and financial consequences that survivors must endure for months, if not for years. Despite significant progress made in predictive science, natural catastrophes continue to pose great threats to built environment, facilities and productivity simply because the when, where and severity of any natural hazard occurrence can change sharply and often unpredictable.

    Cat risk models are very detailed and complex in nature, providing platforms to integrate uncertainties from many underlying scientific information related to the occurrence of natural events and engineering knowledge predicting the damage the induced by catastrophe events. These models use probabilistic techniques to simulate large sets of hypothetical future events and their associated hazard and damage to properties in a given location.

    Cat risk modelling has been under rapid expansion in the last two decades, owing to recent development in computer technology, better scientific information and needs for better assessment of natural catastrophe risks. Cat risk models estimate damages caused by hazards from natural events and based on vulnerability functions characterizing building response to natural hazards. Probabilistic economic losses estimated by such models are ideally suited to risk management entities as well as to the growing insurance and reinsurance industries.

    The intense involvement of insurance industry in the aftermath of natural catastrophes and the significant effects that such events could have on the performance and stability of insurance companies, paved the way for better and more reliable assessment of potential catastrophe-related losses. That is why probabilistic catastrophe loss models (cat risk models) have widely been introduced to provide reliable and scientifically based estimates of future losses. These models are capable of simulating losses for many potential scenarios, each representing a plausible event that the exposure may experience. Cat risk models are based upon innovative applications of scientific and applied researches in the fields of geoscience, engineering and advanced mathematics and probability. Here are some basic characteristics of these models: