Research Shows Current Cat Models Not Representative of Some Risks

August 24, 2005

The ReAdvisory group of Carvill released a white paper that says current catastrophe models under-represent the risks of tornadoes, hail and straight-line wind storms generated by severe thunderstorms. The paper suggests that this poses a significant risk to the insurance industry.

The research was conducted by Dr. Steve Smith, an atmospheric physicist and vice president of ReAdvisory. “While these storms can be considered a predictable risk since losses due to severe thunderstorms occur more or less every year,” Smith said, “the severe thunderstorm peril as a catalyst for losses to insurance programs has not diminished. Even though NOAA noted that the early part of 2005 saw comparatively few severe thunderstorms, they do continue to occur as evidenced by the recent (Aug. 18) locally devastating storm in southern Wisconsin.”

Smith explained, “The problem is that although the occurrence of severe thunderstorm events is fairly predictable on a broad scale, such as at the county level in the United States, the calculation of the potential risk on a fine scale, say at the level of a town, is difficult. This is due to the heavily concentrated and essentially random nature of the individual components of a severe thunderstorm. From the insurers’ point of view this can result in significantly under-estimating peak exposure of risk contained in a portfolio.”

Smith added, “I believe sufficiently refined technological help in this assessment is at least five years away and have proposed an interim solution to better identify exposure.”

The research looks at the exposure in the Great Plains region, and specifically in the area known as “Tornado Alley” (along the Texas/Oklahoma/Kansas axis), and in Florida where many tornadoes are spawned by hurricanes.

The “Tornadoes, Hail and Straight-Line Wind Storms” white paper is available online at

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