Jeff Guo

What's much harder for them to handle are the big once-in-a-generation catastrophes, like when a Category 5 hurricane tears through a city and suddenly everybody needs to rebuild their homes.

A disaster like that can overwhelm a single insurance company.

Why is it called reinsurance?

Why is it not like insurance squared?

The insurance companies weren't really sure how much hurricane insurance they actually needed to buy from the reinsurers.

And the reinsurance companies, they weren't really sure how much to charge for that hurricane insurance.

Now, at the time, a lot of hurricane reinsurance came from this one place.

It's called Lloyd's of London.

And the folks at Lloyd's, they're kind of famous for selling, you know, unusual kinds of insurance.

Like they're the ones who insured Bruce Springsteen's voice and also David Beckham's legs.

No.

One problem was that Karen's models, they were saying something scary, that the whole industry was vastly underestimating the risk of hurricanes.

So it wasn't just the folks at Lloyd's who were skeptical.

A lot of people were.

Karen's company had a handful of clients at the time who were paying her to predict how much damage this was all going to cause.

Karen says everybody in the industry, they were predicting, at worst, this is a $7 billion hurricane.

But not $13 billion.

That's right.

In the end, Karen's model was pretty close to the mark.

Did you get any like apology faxes saying like, sorry, we doubted you?