Karen Clark & Company Introduces Severe Convective Storm Model

October 20, 2017

Karen Clark & Company (KCC) today announced the release of Version 1.0 of its Severe Convective Storm (SCS) Reference Model. The model is based on advanced scientific modeling techniques and has been validated with high resolution insurer claims data.

SCS losses have been trending upward, and this peril now dominates US insured catastrophe average annual losses. Annual SCS losses have consistently exceeded $10 billion for the past several years. In 2011, insured losses exceeded $30 billion and two individual events caused $7 billion in losses each.

Traditional catastrophe models have tended to underestimate the SCS loss potential for insurers. The new KCC SCS Reference Model is based on a physical modeling methodology and high resolution atmospheric data that more accurately capture the dynamics of this peril. The model shows that expected average annual aggregate losses are now approaching $20 billion—larger than hurricane and earthquake combined.

The KCC SCS Reference Model is a multi-peril model (MPM), and the hazards of hail versus tornadoes and straight-line winds are simulated separately. The model shows that hail dominates the SCS peril, accounting for nearly 70 percent of annual losses on average.

Along with a stochastic catalog of over 33,000 events used for pricing and reinsurance decision making, the model includes over 100 historical SCS events. Insurers use the historical events to benchmark the model against their actual losses to verify the model accuracy.

“There has been significant industry demand for a more credible and accurate SCS model,” said Karen Clark, KCC President and CEO. “While this peril does not pose a solvency threat to most insurers, claims from severe thunderstorms eat away at earnings each year, and our clients want to make sure their rates reflect the most up-to-date science and their actual loss experience. We’re pleased to release this new model that can accurately reproduce SCS losses.”

“When we reviewed the first set of results from the KCC model, we were very impressed,” said Morgan Savage, Director of Business Analysis, American Strategic Insurance. “We were never confident in the loss estimates from the other models because the numbers are so different from our actual loss experience. We’re very pleased with the KCC SCS model and are already using it for our growth strategies in SCS prone areas.”

The KCC SCS model is licensed as part of the RiskInsight® open loss modeling platform. All model components are transparent to the model users, and the model damage functions can be customized to reflect individual insurer claims data.