No value in post-cat estimates

Publishing market-wide loss estimates for natural catastrophes creates headlines but they can be unhelpful to clients calculating estimates for specific portfolios, Adam Podlaha, head of Aon Benfield’s Impact Forecasting team, told Baden-Baden Today.

“We don’t see a big value in market loss estimates,” said Podlaha. “We are providing our clients with specific loss estimates for their portfolios.”

The challenges of modelling catastrophes pre-event and posting market estimates prematurely were made apparent by hurricanes Florence and Michael, Podlaha noted.

“For Florence there were a lot of changes to its track and intensity,” he explained. “Michael was the other way around—it intensified as it got closer.”

Impact Forecasting focuses on providing custom loss estimates for clients which it does not publish in the public domain. In the case of hurricanes the estimates are supported by real-time data tracking the paths of storms as they develop. Clients are updated every six hours with three potential loss estimates: the minimum, the maximum and the average.

In the case of Florence, various modelling firms had posted estimates either prematurely or a couple of days after the event, when they arguably have less value, he said. One firm posted a particularly high loss estimate at a point where the storm had already started to weaken.

For Michael, he said, another company made an estimate when the storm was intensifying and the actual losses were likely to increase.

“That’s the problem with market loss estimates posted too early,” said Podlaha. “The models are good if the track of the storm is known.”

Podlaha added that Florence and Michael helped to illustrate the importance of modelling an event in real time for deploying loss adjusters in a timely fashion, but also offering practical information, potentially about evacuation.

“How useful is it to tell people the market loss two or three days after the loss has happened?” he concluded.