Sandy and many, many little friends

Artemis does a nice roundup of the hurricane season. More storms than anyone predicted, most of them weak. Then Sandy became the worst cane for insurance losses since Katrina.

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On the health care beat

Got a couple of checks from Obamacare last week.

I’m self-employed, so I buy my own health insurance – around $17,000 a year for a family of four. My plan failed to hit the government-required 80% medical loss ratio. So last week, I got mini- (and I mean mini-) refunds of about $180 from the past year’s premium. Nice!

As to why four healthy people pay $17K for health insurance, I point to this Department of Labor table from which I clipped the five highest paying occupations:

Simply put, the top-paying professions are:

• Doctor.
• Doctor.
• Doctor.
• CEO.
• Doctor.

Looking forward to the day that doctors are held to the same standard as insurance companies – and are forced to disgorge “excess” profits.

OK, not really.

AIR raises estimate on Sandy losses

The new range is $16B to $22B, roughly double the $7B to $15B the cat modeler first estimated. Here’s why:

AIR principal scientist Tim Doggett said in a statement the increase from his firm’s earlier range was driven primarily by an increased estimate of losses from coastal flooding from Sandy’s powerful storm surge.

Such damage isn’t covered by standard home-insurance policies, and isn’t included automatically in business-insurance coverage either. AIR now estimates 20% of the commercial structures affected by the storm had flood coverage–up from its 10% assumption in its earlier estimate.

The company also said its earlier estimate assumed that home-insurance companies would impose so-called hurricane deductibles, which force homeowners to pay for more repair costs. But regulators in several states have ruled that insurers can’t enforce those deductibles, as the storm was no longer classified as a hurricane when it made landfall in New Jersey.

Estimates from Eqecat, RMS and AIR are settling into the $20B range, which would make Sandy the fourth-worst U.S. disaster in inflation-adjusted losses, according to Insurance Information Institute – after Hurricane Katrina ($46.6B), the 9/11 attacks ($23.5B), and Hurricane Andrew ($22.9B).

PCS’ estimate on Sandy: $11B

Via Artemis. A lot less than RMS, AIR and Eqecat were saying.

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Sandy numbers

The NFIP has $3B on hand – not enough to cover its losses from Sandy. From Reuters:

The Federal Emergency Management Agency will probably need to request a congressional bailout of its flood insurance operations, as claims from superstorm Sandy could be as much as four times greater than the program’s capacity, a top FEMA official said on Wednesday.

That’s $12B in flood losses, meaning the storm will leave the feds $9B in the hole.
Well, an additional $9B, because the flood program had to borrow $15B to cover Katrina claims.

Meanwhile, RMS is telling clients insured losses will be between $20B and $25B, Bloomberg reports.

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Getting started in enterprise risk management

ERM guru Dave Ingram wrote this piece, giving advice to a college student interested in an ERM career. It’s been kicking around my inbox for a couple of days, but I can’t really think of anything to add.

Sandy woes

A sign that Sandy is not you typical catastrophe:

Chubb Corp. (CB) said it was halting share repurchases because it hasn’t been able to estimate its losses from the recent superstorm Sandy, the latest sign that insurers aren’t yet aware of the true scope of the widespread damage across the Northeast.

Also read that QBE’s loss is $350M net, which is a cute trick since I think they buy reinsurance above $200M.

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Modeling as poker

And like everyone who has ever played poker seriously knows, when the math disagrees with your gut, it’s because your gut is wrong. There’s a time and a place for your gut; it’s when and where the math isn’t clear.
More here, though the commentary drifts into partisanship.

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Triumph of the quants

Felix Salmon points outthat all the election quants are taking a victory lap, because they all did remarkably well.
As for Nate Silver:

If you think that the value of Nate Silver is in the model, you’re missing the most important part: there are lots of people with models, and most of those models are pretty similar to each other. The thing which sets Silver apart from the rest is that he can write: he can take a model and turn it into a narrative, walking his readers through to his conclusions.

Salmon also tells some great stories about how brilliant the Obama campaign was coordinating databases and leveraging social media. I’m skeptical. If they were so smart, why didn’t their man barely get a majority?

But his larger point bears repeating:

The thing that Silver and the Obama campaign have in common … is that they used their databases to tell stories.

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Nate was great

Partisanship aside, Nate Silver (I wrote about him here.) called every state correctly, as Flowing Data shows, even the tossup in Florida.
This, after the punditocracy insisted the race was too close to call.
Probably didn’t surprise many actuaries, who know how powerful effective models can be. But it’s a big, visible boost to quantitative efforts everywhere, because the model is powerless unless people believe it.

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