Conceive the inconceivable: the risk exposures are real, and so are the tools to manage them.

When Hurricane Andrew hit Florida in 1992, the damage was unprecedented, inconceivable and a wake-up call for the property/casualty industry, which had to rethink its underwriting and risk assessment procedures. Today, rating agencies and regulators often require propert3qcasualtT companies to do risk modeling. Similarly, the events of Sept. 11,2001, could be a wake-up call for the life/health industry, but not many are picking up the phone.

The concept of catastrophic risk modeling is still new to most life and health companies, just as it was for property/casualty companies 12 years ago. Relatively few companies currently model their catastrophic risks and their exposure. If a disaster or terrorism event occurred now, the financial impact to the industry could be devastating, especially since the catastrophic reinsurance that absorbed much of the 9/11 losses is now scarce and expensive. One LIMRA study of catastrophic reinsurance costs post-9/11 found that insurers were getting approximately one-sixth the coverage for more than seven times the price.

The recently released Risk Management Solutions life and health insurance study on catastrophe, injury and insurance, in which ING Re was a co-sponsor, illuminates both the impact of various scenarios and how far the industry's risk modeling capabilities have evolved in the past two years. It features realistic benchmark scenarios for losses by product line from likely disasters such as earthquakes, industrial accidents and terrorist attacks.

The inconceivable is now chillingly possible. Experts say a future terrorist attack isn't a matter of if, but when. For many life and health companies, however, competing priorities and complacency may keep them from taking steps to assess and manage the impact of disasters. But if you know there is a 100% chance of a natural or manmade disaster affecting your business, is it a breach of fiduciary responsibility not to take a proactive approach to disaster risk management?

Consider two examples from the RMS study: a 7.1 earthquake hitting Los Angeles at 2 p.m. projects to 100,000 casualties, 4,500 fatalities and group life claims of $270 million, AD&D claims of $156 million and $169 million in health claims; or a series of 2-ton truck bombs at the Sears Tower, Hancock Center and Navy Pier in Chicago on a weekday afternoon means 87,000 casualties and 5,000 fatalities, with payouts projected to $548 million for group life, $296 million in AD&D and $72 million for health insurance. How many insureds and how much volume do you have in these ZIP codes or at these addresses? If either event happened tomorrow, could you quickly report what share of these claims belongs to your company? What underwriting decisions might you have made yesterday? Knowing your potential claim exposure ZIP code-by-ZIP code and building-by-building allows you to identify high-concentration areas and proactively manage risk. It also gives you a competitive advantage in pricing your coverage and securing the best reinsurance rates.

Fortunately, more database tools are available in the marketplace to help insurers collect and organize concentration of risk data in order to analyze risk by earthquake and terrorism zones. They fit into a broader four-step approach you can take to put your company in a stronger position to assess and manage the impact of disasters.

* Define your risk tolerance. Determine how much exposure is acceptable in a particular geographic area, paying attention to exposures that may accumulate over multiple business units, such as life, disability and health insurance.

* Collect and maintain meaningful portfolio data. Build a comprehensive database that allows you to determine clients' exposures by geographic distribution, ZIP code-by-ZIP code, building-by-building.

* Monitor exposure. Use the data collected to make sure your company adheres to the risk tolerance level that has been defined.

* Model losses. Use risk modeling to determine expected losses from catastrophic events. In addition, risk modeling allows real time loss estimation when a catastrophic event occurs and an accurate estimation of the loss for senior management.

As with the property/casualty industry, rating agencies may soon come to expect catastrophic risk modeling in the life/health industry. We've got to think about the inconceivable and be ready with answers when disaster does strike. Ignorance won't be an acceptable excuse the second time.

Erik Rasmussen is vice president, risk management, for ING Re's Group Life, Accident and Health Reinsurance operation, based in Minneapolis. He can be reached at [e-mail].