Why updated CAT models defend against uncertainty
Avoid surprises. Choose a model that reflects reality.
Risk-informed decision-making in the insurance and reinsurance world is underpinned by catastrophe (CAT) models. Yet all too often, the models and the data used to make these decisions are out of date. While updates can be costly and time-consuming, the price of short-term convenience is not worth the long-term costs to stability.
With updated Cotality CAT models scheduled for release this year, it’s the perfect time to revisit why keeping your models current isn’t just good practice, it’s a business necessity.
Overpay or underpay: You lose either way
When your model is out of sync with the latest science or market assumptions, you're flying blind when it comes to pricing, and that can cost you dearly.
If you overpay for reinsurance, you suppress your earnings and competitiveness. If you underpay, you may face significant solvency risk if a major event like Hurricane Helene hits. Reinsurance purchasing decisions hinge on CAT model outputs and that makes model accuracy non-negotiable.
The closer your model is to reality, the more accurate your view of potential loss. That means better risk pricing, smarter capacity allocation, and stronger financial resilience.
No pain, no gain
We get it: model updates are disruptive for everyone. It starts with IT implementing and testing, then underwriters recalibrate, and finally you must justify any changes in portfolio loss to reinsurers. But the alternative of delaying updates only makes those pain points worse down the line.
Infrequent model updates often result in large, sudden shifts in portfolio loss estimates, which are hard to explain to stakeholders and can spark confusion, mistrust, or even capital strain.
By contrast, regular model updates lead to incremental, manageable changes. They allow your team to stay aligned with scientific and engineering advances without having to explain massive year-over-year swings in cost.
Choice for a competitive edge
Choosing the right CAT model is a strategic decision. The right model for your needs should be judged on how accurate it is, how frequently it’s updated, and how easily your team can work with the vendor.
Take, for example, the recent update to the Cotality U.S. Earthquake Model. Following the release of the 2023 U.S. National Seismic Hazard Model by the USGS, Cotality incorporated the new model into its Catastrophe Risk Earthquake solutions. The result was a significantly improved view of earthquake risk across the US.
This updated model produced notable shifts in key metrics like average annual loss (AAL) and return period (RP) estimates. More importantly, it revealed fine-scale spatial differences in risk, sometimes even within the same ZIP Code. These insights allow insurers and reinsurers to identify localized changes in exposure and respond with more targeted pricing and underwriting decisions.
Model vendors like Cotality that prioritize scientific rigor, frequent enhancements, and responsive support allow you to price with more confidence, engage reinsurers with credible, consistent data, and avoid being caught off guard by changes others didn’t see coming. Don’t let an outdated model set you back.
In a market defined by uncertainty, the biggest risk is relying on outdated assumptions. CAT models are only as valuable as the data and science behind them, so when those inputs evolve, your model must evolve too. Not doing so can leave you exposed to blind spots, missed opportunities, and unnecessary volatility.
The risk landscape will change. So too will your modeling needs. Stay ahead by staying current.
Stay tuned for the release of our updated Cotality CAT models this year.
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