Models that insurance underwriters use to help assess the risk of loss when pricing a policy are a tool that must be used in tandem with human judgment, industry experts gathering to discuss the sector's issues, said this week.

"As an industry we have become over-reliant on analytics," said John Berger, chief executive of $1.5 billion reinsurer Harbor Point, a new company established in the wake of Hurricane Katrina.

Mr. Berger and other industry experts, over two days of panel discussions held as part of this week's World Insurance Forum, said some in the industry had learned the hard lesson that over-use of models in pricing policies was a recipe for disaster. Katrina, the devastating August 29 storm with an estimated $60 billion cost making it the most expensive disaster ever, resulted in larger claims than many companies had modelled for.

Some companies, such as Montpelier Re and PXRe lost more than half of shareholders' equity, and had to rush to the capital markets to replace the losses.

And in PXRe's case its capital raise may not have been enough, with its increasing its estimate for 2005 storm losses last week resulting in a ratings downgrade by all the major firms that track the financial strength, and ability to pay claims, for the industry. Under the downgrade, PXRe faces the prospect of losing most of its customers.

The models, which are computer-based and designed specifically to factor in various risks that an insurance policy could contain, are used by underwriters as part of coming up with how much to charge for a policy.

"The use of modelling is nothing more than organising a body of knowledge," said Hemant Shah, chief executive of modelling firm, Risk Management Solutions, a Berkeley, California company. "You then have to use your judgment."

Neil Currie, chief executive of Renaissance Re Holdings Ltd., a reinsurer that uses its own proprietary models as well as those available on the market, said it was common sense that underwriters had to do more than rely on what data is spat out by the models. "For people to pick on the models is inappropriate."

And Richard Clinton, president of Eqecat, Inc. an Oakland, California rival of RMS, said it was important to use multiple models to make sure a complete range of data was used as part of the decision process.

Insurers should also make sure their models are taking a sober enough look at the risks. Karen Clark, president and chief executive of AIR Worldwide, a Boston-based firm that also produces models for the industry, warned that current climate changes should make every insurer wary. "$100 billion events need to be in models," she said, indicating that Katrina's $60 billion pricetag isn't the biggest that could hit the industry.

And it isn't just hurricanes, or other natural disasters like earthquakes, keeping insurers awake at night. "There are a great deal of hazards not being modelled that need to be," said Mr. Shah, adding that the risk landscape was constantly changing.

In 2001, it became clear that terrorism was a serious threat, and one that continues today, he said. And there are emerging risks, with models now being updated to assess the costs that could arise if a pandemic flu takes hold around the world.

Insurers generally pride themselves on carefully pricing policies so that if if there are losses, the financial health of the company won't be undermined. In industry parlance it is called 'underwriting discipline'. But, when insurance pricing, which generally rises and falls over an unpredictable cycle, drops some insurers abandon discipline and sell policies at unprofitable prices in the interest of volume.

"There is the possibility of gaming the models," said Mr. Clinton, indicating that some insurers may have manipulated models in the past to justify low policy pricing.

And pricing based on modelling data alone isn't likely to be enough to pass muster with ratings agencies. The firms, which assign a financial strength rating closely followed by commercial buyers of insurance and reinsurance, are scrutinising business plans and practices more than ever after Hurricane Katrina left a number of insurers with severely depleted capital bases.

"Rating agencies want to know what you are doing above and beyond the models," said Scott Carmilani, chief executive of Allied World Assurance Company, a Bermuda insurer formed in 2001.