The insurance industry, which includes primary and re-insurance companies, has traditionally quantified risk using actuarial (i.e., statistical) techniques. When data exist for a large number of events, such as automobile accidents, this approach serves the industry well. The number of extreme weather events is not sufficient to apply actuarial techniques without compromise. An approach developed in which accounting for risk from these phenomena directly was largely ignored. This approach dominated until a number of large storms devastated northwest Europe (e.g., storm Daria in 1990) and the southeast US (e.g., hurricane Andrew in 1992).
One result of these extreme events has been the emergence of catastrophe modeling. This paper will address the opportunities and challenges that now exist in this industry because of advances in numerical weather prediction modeling and computing technology.