Catastrophe models existed for several years before Hurricane Andrew, but it was this event that validated their credibility and led to their enhancement and widespread adoption. Now, 25 years after this industry-changing event, the models are again ripe for change.
In the mid-1980s, computers and statistical techniques — such as Monte Carlo simulation — were becoming more accessible to scientists, engineers and other researchers. These are the tools that enabled the development of the first hurricane simulation model used to estimate the damages and insured losses from possible future storms. At the time, the first Cat model indicated that a Category 5 hurricane making a direct hit on Miami could cost the industry US$60 billion.
Even though there were a handful of companies using the models at the time, no one could quite believe that number because the largest hurricane loss before Andrew had been US$4 billion caused by Hugo in 1989.