Karen Clark & Company introduces new tool to supplement models in managing catastrophe risk

Karen Clark & Company (KCC), independent experts in catastrophe risk, catastrophe models and catastrophe risk management, is introducing Characteristic Events (CEs), a new tool to assist insurance companies in assessing and managing catastrophe risk.
CE intensity “footprints” are created using the same scientific data underlying the catastrophe models. They represent a catastrophic event characteristic of the selected return periods and for specific regions.
For example, in Florida, a 100-year CE would be representative of a Category 5 hurricane. In the northeast United States, the 100-year CE would be representative of a Category 3 storm.
These fully transparent footprints are superimposed on company exposures. Damage functions by occupancy and construction are then applied to estimate the losses.
For each exposed region, CE footprints are “floated” to make sure that all exposed properties are covered and the resulting patterns of risk are smooth and logical, particularly at high resolution.
CEs can be used to supplement catastrophe models. “Because the catastrophe models generate random events, the underlying pattern of risk at high resolution can be erratic and anomalous,” KCC says in a press release. “Model-generated ZIP code and location level losses are particularly volatile.”
“After working with dozens of companies over the past several years, we found the fundamental requirements for effective catastrophe risk management are stable sets of events to represent large loss potential and consistent yardsticks for measuring and monitoring risk,” said Karen Clark, president and CEO of KCC.
“By remaining constant year to year, CEs provide more stable risk metrics for day-to-day underwriting and pricing decisions and monitoring the effectiveness of risk management strategies over time. They can be used on their own or as a perfect complement to the models.”
CEs are currently available for hurricanes, and are expected to be available for earthquakes in the future.