--- title: Cat Models are not for Underwriting description: A few weeks ago there was a piece published on AIR’s In Focus blog about how to use a cat model for underwriting. image: https://www.goinsitepro.com/hubfs/Risks%20of%20Hazard%20Blog%20Posts/Scredriver.jpg --- [![InsitePro Logo](https://www.goinsitepro.com/hs-fs/hubfs/InsiteProGlobe-with-text-web-2.png?width=500&name=InsiteProGlobe-with-text-web-2.png "InsitePro Logo")](https://www.goinsitepro.com/) [![InsitePro Logo](https://www.goinsitepro.com/hs-fs/hubfs/insitepro_2018/images/InsitePro4%20(1).png?width=500&name=InsitePro4%20(1).png "InsitePro Logo")](https://www.goinsitepro.com/) [Contact Us](http://www-goinsitepro-com.sandbox.hs-sites.com/contact-us) | [+1 877-837-7246](tel:+1%20877-837-7246) - [Why InsitePro](https://www.goinsitepro.com/why-insitepro) - [Flood](https://www.goinsitepro.com/flood-insurance) - [Wildfire](https://www.goinsitepro.com/wildfire-insurance) - [Retail Agents](https://www.goinsitepro.com/retail-agents) - [About](https://www.goinsitepro.com/about-intermap) - [Blog](https://www.goinsitepro.com/blog) ## Cat Models are not for Underwriting Posted at Mar 2, 2017 10:00:00 AM by [Ivan P. Maddox](https://www.goinsitepro.com/blog/author/ivan-p-maddox) - [Tweet](https://twitter.com/share) ![Scredriver](https://www.goinsitepro.com/hubfs/Risks%20of%20Hazard%20Blog%20Posts/Scredriver.jpg) A few weeks ago there was a piece published on AIR’s [In Focus](http://www.air-worldwide.com/Blog/) blog about how to use a cat model for underwriting. [The piece](http://www.air-worldwide.com/Blog/How-to-Use-Models-for-Disciplined-Flood-Risk-Underwriting/) immediately caught my attention because I spend my days discerning the difference between underwriting and accumulation management/financial modeling. They’re different, and here was an article about how to use one for the other. Interesting…. Here is a description of the “Limitations of a Traditional Approach” to underwriting flood: 1. Within flood zones, there is a great deal of uniformity in intensity for large geographic areas. 2. Outside of the 0.2% (500-year) and 1% (100-year) flood plains, no historical flood intensity information is available. These are definitely problems for underwriters, and they are well stated. In fact, [we couldn’t have said it better.](https://www.goinsitepro.com/risks-of-hazard-blog/2015/09/underwriting-with-a-pen-vs-a-paint-roller) The solution using a cat model? To accurately assess the risk, all flood-related actuarial and pricing decisions should involve modeling to capture the associated uncertainty and interdependence in probabilistic outcomes. And… The underwriter needs a modeled solution to put historical losses into context and quantify the expected variance of future insured losses. Does that work? It’s a bit weak on the first problem, because the same over-generalization (i.e. uniformity) identified as a problem for underwriting is also a problem for the loss modeling. Stochastic modeling doesn’t reduce uniformity (it amplifies it). On the second problem, it has nothing to say: there is no historical information to put into context, which is the problem in the first place. [Risk assessment software](https://www.goinsitepro.com/software/insitepro/flood-risk-assessment) for underwriting flood solves these two problems (because that’s what it’s for): 1. With high resolution elevations and flood models driving risk scoring analytics, it is possible to assess flood risk at a very refined level. No uniformity. 2. Using more datasets than just flood models (including elevations and source-of-flooding locations) underwriters are not at all limited to any flood zone, anywhere. As an aside, I’m not much of a handyman. A part of the reason is that I don’t always have the right tools. Sometimes when I need to drive in a nail, I use the handle of a screwdriver. I’ve never seen a carpenter do that, though. They ALWAYS use the right tool. Topics: [Flood Modeling](https://www.goinsitepro.com/blog/topic/flood-modeling), [Effective Underwriting](https://www.goinsitepro.com/blog/topic/effective-underwriting) ### Comment Form ![sidebar-bg](https://www.goinsitepro.com/hs-fs/hubfs/sidebar-bg.jpg?width=280&name=sidebar-bg.jpg "sidebar-bg") # The Risks of Hazard Blog Welcome to The Risks of Hazard, brought to you by Intermap Technology. 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