While catastrophe models are a good tool, treating models as a panacea for all major catastrophic events is a failure to use common sense and good underwriting judgment, a group of international insurance experts said yesterday.

The panel, convened at the 20th Hawksmere International Reinsurance Congress, discussed the flaws of the risk models, what has been learned about modelling after 2004 hurricane season and Katrina/Wilma, accuracy and dependency on models and pricing models.

?Catastrophe modelling technology is probably the most important innovation that has happened in the last 25 years of the insurance industry,? Andrew Castaldi, head of catastrophe and perils unit, Swiss Re Americas Division said.

?Perhaps we have become too dependent on these models, I think some people (in the industry) believe they are a cure-all.?

Mr. Castaldi said sound underwriting judgment and common sense were more important the model itself: ?There is an old saying that a fool with a tool is still a fool.?

The panel said there is room for improvement on how insurer?s use and interpret models, to better understand data content, help with new policy forms, better understand causes of loss, storm surge and laws resulting from Hurricane Katrina.

?I think there is huge lack of consistency throughout insurance industry. Over the last two years there has been a lot more attention to how the models are being run, not data, but how the models are being run,? said John Graham, CEO of ICAT Managers.

?Rating agencies and regulators have pretty much standardised the way in which they expect companies to run the models to model their exposure to natural catastrophes.?

?The next step is to bring some consistency around data and create a level playing field both in the modelling companies and the industry.?

Mr. Graham said there should be scrutiny on how actuaries look at a casualty loss reserves, audit data quality and the way claim reserves are set.

?Significant resources have been and will continue to be invested into trying to identify significant flaws in the risk models, to recalibrate the models and to fix the flaws.?

?Resources to answer this question are coming from many sources, from modelling companies, rating agencies, hedge funds, and regulators State and Federal.

Mr. Graham, who obtained a Bachelor of Arts in History, was E.W. Blanch Company?s project leader for the placement of the California Earthquake Authority?s $3.5 billion reinsurance programme, the largest reinsurance placement in the history of the market.

?In my view asking the question ?what are the flaws of the risk models when measuring property catastrophe risk? is almost an identical question to asking ?what are the flaws in the actuarial sciences when measuring long tail liability risk?.?

Mr. Graham, who experienced the liability crisis of the mid-1980s, said actuaries and their methodologies are imperfect and frequently less than precise and how underwriters use actuaries varies widely.

He also said many companies are absolutely committed to finding the best possible information from their actuaries, their methodologies and their staff.

?Had insurance companies listened to their modellers in 2004 they would have appreciated the fact that they were overexposed and prices were technically inadequate.?

Mr. Graham said while there will always be uncertainty about models, quality of data is critical to be inputted into the models.

?I think the modelling companies need to be challenged and asked to produce a standard about how values should be expressed, are we expressing actual cash value, replacement cost values or reconstruction values.?

?There is no consistent expression as to what the model companies are using to measure exposure, I think that standard needs to be established.?