Building and Using Complex Models to Make Financial Decisions

Driven by dramatic advances in computing power and the ability to quickly analyze large volumes of data, complex decision-making models have become ubiquitous in many industries, particularly financial services.  While a model can provide a consistent decision-making framework and expert quantification of key system variables, model precision can be confused with accuracy.  Users of model output don’t always know the sensitivities of the output to the model assumptions or the degree of uncertainty around the assumptions.  The current economic situation is in no small part due to issues with models in the mortgage-backed securities market. This lecture will address these issues in the context of models used to assess and manage catastrophe risk.  Common modeling malpractices will be discussed along with best practices and future research in this area.

Karen Clark is President and CEO of Karen Clark & Company, independent experts in catastrophe risk, catastrophe models, and catastrophe risk management who work with insurance company executives to enhance business strategies, competitive advantage, and financial results.  

   Ms. Clark developed the first hurricane catastrophe model and in 1987 founded the first catastrophe modeling company, Applied Insurance Research (AIR) which subsequently became AIR Worldwide after acquisition by Insurance Services Office in 2002. In her capacity as President and CEO of AIR, Ms. Clark spent over 20 years working closely with meteorologists, seismologists, engineers and other experts to develop the most scientifically advanced catastrophe models, and she led the development of software applications that are used globally as standard tools for catastrophe risk assessment and management.  Ms. Clark built AIR into one of the top two global modeling companies, and she has worked with major corporations around to world to help them better assess and manage catastrophe risk.

Ms. Clark has been recognized for her contributions to the insurance industry, including being honored as Woman of the Year by the Association of Professional Insurance Women (APIW) in 2001. In 2007, she was honored with the Review Worldwide Reinsurance Award’s Lifetime Achievement Award.  Most recently, Ms. Clark has been honored with an award certificate for the 2007 Nobel Peace Prize bestowed on the Intergovernmental Panel on Climate Change (IPCC) for her support of the work of the IPCC since its inception.  In September 2008 she was named the Most Influential Woman in the reinsurance industry by Global Reinsurance and a Risk Innovator by Risk & Insurance Magazine. Ms. Clark has appeared numerous times on national television and was featured in two History Channel specials on Northeast hurricanes and earthquakes. She holds a Masters Degree in Economics and an MBA, both from Boston University.