Wildfire, SCS, and the future of cat modelling – Karen Clark interview

In a recent conversation with GR’s editor, Clark discussed how insurers and reinsurers must adapt to an evolving risk landscape, particularly as climate change, property values, and regulatory frameworks continue to shape the market.

Wildfires, leading the headlines in 2025, have emerged as an exception in the broader debate over climate change’s role in rising insured losses.

Wildfire challenge

While there is considerable discourse attributing natural catastrophes to climate change, Clark (pictured) offers a nuanced perspective.

“The real driver of increasing losses to date has been increasing property values,” she explains.

“Since 2011, the cost to build the same single-family home in the US has doubled. People continue moving into hazardous areas, and what we build today is far more expensive than in the past.”

However, wildfire frequency and severity are being exacerbated by climate change.

“There is scientific consensus that climate change is increasing the frequency and severity of wildfires,” Clark notes. “According to KCC analysis, these variables have doubled since 1985.”

Unlike hurricanes or earthquakes, where historical exposure adjusted for inflation shows no clear trend, wildfires stand out as a peril where climate change plays a significant role.

This reality has led to significant market disruption, particularly in California. Insurers face difficulties in pricing risk due to restrictions on using catastrophe models for underwriting.

“Even before recent wildfire events, there was not a lot of private wildfire insurance being offered,” Clark points out. “The FAIR Plan was growing quickly, and some people simply didn’t have insurance at all.”

She emphasises the need for regulatory change in California, stating, “Insurers can’t write the business if they can’t get a risk-based premium. The California Department of Insurance needs to allow insurers to use catastrophe models to underwrite and price risk appropriately.”

SCS: a growing concern

Severe convective storms, including tornadoes and hailstorms, present another significant challenge for the industry. Despite their relatively lower profile compared to hurricanes, they contribute significantly to annual aggregate property losses.

“Severe convective storms dominate annual aggregate property losses in the US,” Clark says. “On an annual basis, they surpass hurricanes in total losses.”

While these events do not typically lead to insurer insolvencies, their annual volatility is a pressing concern.

“Major insurers don’t like the volatility in aggregate losses,” Clark says. “They’re willing to pay reinsurers to take away some of that uncertainty.”

Historically, reinsurers have been reluctant to offer coverage on an aggregate basis due to pricing challenges.

“Reinsurers haven’t liked annual aggregate covers because they haven’t been confident in their ability to price them,” Clark explains. “But at KCC, we’ve developed newer tools that allow for more accurate modelling, and we’ve already seen successful transactions based on model loss rather than indemnity loss.”

Another challenge with SCS is defining what constitutes a single catastrophic event.

“Unlike hurricanes or earthquakes, severe weather is continuous,” Clark says.

“Meteorologists don’t name SCS events or track them in the same way, making it difficult for reinsurers to apply traditional occurrence-based contract structures.”

To address this, KCC has developed new tracking tools. “We provide insurers and reinsurers with the ability to track events in real-time, so they can always mark-to-market and know where they stand relative to their aggregate cover,” she adds.

The future of cat models

Looking ahead, Clark sees frequency perils like wildfires and SCS as the frontier for catastrophe risk modelling.

“While climate change is slightly impacting hurricane severity, its real impact is on perils like wildfire and SCS,” she says. “Reinsurers have been hesitant, but with better models and tracking tools, they should see this as an opportunity rather than a threat.”

She remains optimistic that regulators and market participants will adapt.

“The insurance industry has survived wars, depressions, and pandemics,” she says. “We can successfully manage climate change risks, too. The key is embracing the right modelling technology.”

For KCC, that means continuing to refine models that not only improve risk pricing but also help insurers manage their exposure concentrations more effectively. “Lloyd’s of London built its reputation on pricing exotic risks; wildfire and severe convective storms are just the next chapter. Cat models exist to prepare companies for these events, so they’re not shocked or surprised when they actually happen,” Clark says.