MSO's First Educational Seminar

On October 22, 2008, MSO hosted its first full day educational seminar. Eight partner organizations joined with MSO in sponsoring the event. The keynote session on catastrophe modeling and underwriting was conducted by Karen Clark, a world renowned expert in the field of catastrophe risk assessment and management. Ms. Clark actually developed the first hurricane cat model and founded the first cat modeling company, Applied Insurance Research (AIR) in 1987. While modeling can be done for various kinds of catastrophes, Ms. Clark concentrated the presentation on hurricane modeling as that is the pressing issue here in the Mid-Atlantic region.

Hurricane catastrophe models do not predict when or where hurricanes will occur. Rather cat modeling uses historic data (landfall locations, tracking of paths, damages, wind speeds. etc.) to develop computer generated models that will predict within a level of accuracy what could happen if a hurricane hits a specific area at various force levels. The models superimpose the historic data onto current property values and density to simulate potential events and losses. This type of modeling is used extensively in the insurance industry as a tool for risk assessment to minimize the uncertainty in underwriting.

Why is this important to our companies? As an example, if a hurricane were to make landfall in the Atlantic City area, the model would predict the amount and extent of damages there. If a company were heavily concentrated in Atlantic County, then that could be problematic. Also, reinsurers make extensive use of modeling in determining the property reinsurance costs. But, as Ms. Clark noted, modeling is a tool to aid underwriting, it is not a replacement for risk assessment in underwriting. As Yogi Berra said “Predicting is hard, especially when it is about the future.”

The afternoon sessions dealt with the emerging issue of cyber-risk and how the internet impacts the insurance industry. Michael Dunne and John Scordo from Day Pitney LLP presented on the commercial side. Mr. Dunne gave an overview of all of the various risks associated with commercial entities including privacy issues. We were reminded that insurance companies are considered financial institutions and have a legal responsibility to guard policyholder information. Mr. Scordo described the property and liability coverages that are available and how they apply. These policies are primarily written through the Excess and Surplus Lines market.

The seminar closed with Eric Harrison and Matthew Werbel of Methfessel & Werbel presenting on several specific liability issues with internet exposures and how MSO policy wording reacts. They looked at both commercial and personal lines forms and addressed three recent court cases dealing with blog sites and internet hacking. Since this is a newly evolving area in the law, the main concern may be in how the damages are measured. Postings on the web may be viewed by many hundreds of people.