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More than one way to define a Cat


September 3, 2020   by Greg Meckbach


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If you disagree with a co-worker on exactly what a catastrophe is, both of you could be right. There is no single standard definition of a “Cat,” with the industry’s loss costs — and even media coverage — among the factors that go into deciding whether an event is a Cat.

“We are not all on the same page,” said Glenn McGillivary, managing director of the Institute for Catastrophic Loss Reduction. “Ultimately, what constitutes a catastrophe is in the eyes of the beholder.”

McGillivary was asked about the definition of a Cat during Canadian Underwriter‘s Aug. 27 webinar, Standing on Guard for Thee: Adjusting Canadian NatCats.

For its part, Desjardins Insurance uses three criteria to decide whether an event is a catastrophe, said the carrier’s section manager of property field claims for the Ontario, Atlantic and Western Regions, Fred VanDine.

“We take a look at the event magnitude, we look at our internal capacity, and media coverage. We don’t have a threshold number of claims. It really depends on the three triggers,” said Van Dine.

“A Cat is going to be very different to a very large company than to a small or a medium regional player, so we are kind of all over the place,” said McGillivray. “Some companies even differentiate between a catastrophe and a disaster.” McGillivray said he prefers the Cat definition used by Catastrophe Indices and Quantification Inc. (CatIQ), which is an insured loss of $25 million or more spread across the industry.

Audience members saw a slide listing the top 11 Canadian cat events from 1983 through 2018. Topping the list was the 2016 Fort McMurray wildfire with an industry-wide insured loss of $3.8 billion.

CatIQ recently estimated the June 2020 Alberta hail storm cost the industry $1.2 billion, making it the fourth most expensive natural disaster in Canada.

“It was a massive event,” Skip McHardy, chief operational officer of catastrophe response at CRU Group, said of the Alberta hail storm during the webinar. “I think it caught everybody off guard. Geographically, the areas that were affected were not really big, but I would say in the 10 years I have been here, this was the most severe level of hail we have ever seen.”

In recent years, Canadian catastrophes have been caused by a variety of events, said McGillivray.

“We are seeing a lot of flood-related events, both overland and urban heavy rainfall-related events. There is no question about that. But we are also seeing hail and wind, and of course fire. And when you look at the losses year after year, they really are a mixed bag of those major perils. Some years are worse than others.”

Feature image via iStock.com/Edruba