Monday, 12 January 2009
A value proposition of seasonal hurricane forecasts for property insurance risk management
Hall 5 (Phoenix Convention Center)
Hurricanes are the largest natural source of risk to property insurance companies in the United States. Many property insurance companies utilize reinsurance (that is, insurance for themselves) to reduce the effect a major hurricane or a series of moderate hurricanes can have on their earnings. Seasonal hurricane forecasts offer the potential to inform the amount of reinsurance coverage a property insurer needs to sustain a given season, as well as informing the cost associated with that coverage. Forecasts, however, have significant uncertainty and many insurance risk managers question the value seasonal Atlantic hurricane forecasts can have on their business. This paper proposes that, despite their large uncertainty, today's seasonal hurricane forecasts offer significant value to U.S. property insurance companies and this value will grow over time as forecast uncertainty is reduced. Examples of how seasonal hurricane forecasts have been utilized to consult with property insurance companies will be presented.
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