Differentiating Catastrophe Risk Management requires an appropriate balance between business, risk appetite and expertise across a wide variety of hazards. However, the most important concept is the recognition that Catastrophes will happen. It is only a matter of 'when' they occur, not 'if' they will occur.
Catastrophic events occur every year. Lives are lost, property is damaged and economic interruptions occur. As population densities continue to spread into regions susceptible to natural catastrophes, losses will continue to grow proportionally.
Stochastic modeling based on current scientific knowledge can help manage exposures to catastrophes by increasing our understanding of the uncertainty of any outcome. While these models are helpful tools, they cannot predict the future.
As science and our experience advance, catastrophe models are frequently updated. After each major catastrophe, we learn something unexpected and subsequent model versions will attempt to incorporate these ‘lessons learned’. Similarly, as new scientific consensus emerges it is eventually incorporated into the next generation of models. Given this continual evolution in model development, it is important to remember that models used to support today’s decisions, will be different in the future. This does not mean that the models are wrong today, it only means that our understanding of hazards will continue to change.
Armed with the knowledge that the models available today 1) will change; 2) cannot predict the future; and 3) include a high degree of uncertainty, how can models be utilized to facilitate today’s business and risk decision making? With our experience quantifying and managing the uncertainties inherent in catastrophic risk, Salient Risk Advisory Services can help provide answers to these questions.
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