So Far, the Competitor’s Missin’ the Mark

I work for a companythat builds scientific models

…used by insurance companies to set rates charged to homeowners; by reinsurance companies to set rates they charge to insurers; by ratings agencies for evaluating risks; and others. My company has one competitor: Risk Management Solutions, or RMS.

In the spring of 2006, RMS issued a five year forecast of hurricane activity (for 2006-2010) predicting U.S. insured losses to be 40% higher than average. We are now two years into the RMS forecast period and can say a bit about their unprecedented forecast: it’s not so accurate.

Average U.S. insured losses for hurricane damage are about $5.2 billion per year. Over 5 years, this is $26 billion, and 40% higher than this is $36 billion. A $36 billion dollar insured loss is about $72 billion in total damage. The National Hurricane Center official estimate for the biggest hurricane of our time, Katrina, is $81 billion.

So for the 2006-2010 RMS forecast to play out as predicted and get anywhere close to $72 million will require, in the next three years, close to another Katrina-like event. This is, of course, possible, but it’s more likely that next year you’ll get younger.

So…what has RMS done is the face of evidence that its first 5-year forecast was not so right-on? They have declared success and issued another 5-year forecast of 40% higher losses for the period 2008-2012.

Stay tuned.

.MGW.

~ by meagangwhite on December 10, 2007.