Cat Modeling is Here to Stay

Implications: Primary insurers and reinsurers will demand that catastrophic modeling be used in order to justify their underwriting decisions of this type of insurance.  These newer models in conjunction with in-house capacity aggregation tools (Insurers now know where and how much of their capacity is in play) will guide their underwriting decisions from windstorm and earthquake to workers compensation in terrorism prone cities like DC and NYC.  The process is another way to spread the risk, so that any one insurer does not take a huge hit from any one event.  Using technology to spread risk will utimately decrease volatility in insurance markets. 

Analysis: Insurance and reinsurance companies will continue to invest capital in the improvement of cat modeling systems.  These systems will help the insurance industry spread the risk of catastrophic events which in turn will smooth volatility in insurance markets.