Introduction

Hurricane Katrina was the most destructive US natural disaster in history and the most expensive catastrophe loss ever for the global insurance industry. The occurrence of Hurricane Katrina, and the associated flooding of New Orleans, was also by far the greatest US catastrophe to have occurred since the widespread application of catastrophe models in the mid 1990s. The combination of catastrophic wind and flood losses proved to be a potent test of the underlying methodologies and procedures of catastrophe loss modeling. This chapter reviews the impact of Hurricane Katrina and the response of Risk Management Solutions (RMS) to the event, both in the immediate aftermath and then in galvanizing new research to expand the agenda for catastrophe loss modeling in order to gain a more comprehensive perspective on catastrophe risk costs.

The legacy of Hurricane Katrina has meant that the agenda of catastrophe modeling has become more complex and comprehensive in attempting to capture all facets of loss, incorporating an expanded range of nonlinearities that ramp up losses caused by the largest catastrophes. The insurance industry has also learned from the experience to question the validity and comprehensiveness of the data that are entered into the models and how the models are employed to explore the sensitivity of predicted losses.