Enhanced data collection for 2007 catastrophe modelling essential

Enhancing data collection for catastrophe modeling is imperative for insurers and reinsurers in 2007, according to Ernst & Youngs Quarterly Insurance Industry Outlook.The 2004 and 2005 hurricane seasons revealed weaknesses in commonly used catastrophe risk modeling techniques, the report notes. Among the major revelations, it was determined that the quality of exposure data, especially for commercial lines of business, was insufficient.While 2006 was a quiet year, the memory of Katrina has not faded, and a key imperative for 2007 is enhanced data collection.Ernst & Young notes that as insurers begin to plan improvements, it is important to recognize issues surrounding data quality that might come to play in other naturally occurring catastrophes such as earthquakes. In some cases a major reconstruction effort is necessary, and if done properly, it can offer significant competitive advantages with respect to pricing and risk selection as well as reinsurance pricing and capacity, the report notes.Ernst & Young suggests the following steps for improving data quality: Define a data governance process addressing who owns data and data quality Communicate the impacts of data quality on risk measurement, management and reinsurance pricing Research which exposure data elements are important and how they can be obtained Evaluate the effectiveness and potential improvement of using third party tools and databases Design a data collection process and warehouse architecture that positions companies for success now and in the future Initiate a review protocol to periodically assess the processes and controls surrounding data collection.Smart companies will recognize that the current lull offers an opportunity to implement necessary changes addressing the way they collect, store and use data, Ernst & Young Insurance and Actuarial Advisory Services manager Tom Stone says. Those who invest today will realize significant benefits in the future. It is only a matter of time before the winds blow again, and the industry has to answer the recurrent question of how its risk management practices performed against the latest hurricane.