What's happening on the Societal Aspects of Weather WWW Site. The 1990s have seen the rise of the catastrophe modeling industry in response to demand, primarily from the insurance industry, for quantification of risk. Decision makers seek from catastrophe models some estimate of the risk that they face due to extreme events like hurricanes or earthquakes. The model uses these data to calculate things like probable maximum loss, annual expected loss, and losses due to a specific event.
Insured losses are typically much smaller than total economic losses in a catastrophe.
Catastrophe models have become fundamental to the existence of financial products such as catastrophe bonds and futures. Even the United States government has begun to develop its own catastrophe models to aid its Federal Emergency Management Agency response to disasters. Clearly, with so many decision makers wanting to understand risk, the rise of the catastrophe model industry should be applauded. Evaluation of predictions of any sort can be tricky. It involves more than just comparing the prediction with what actually unfolds.