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📊 '''Vulnerability function''' is a mathematical relationship used in insurance [[Definition:Catastrophe modeling | catastrophe modeling]] that translates a given level of hazard intensity — such as wind speed, ground shaking, or flood depth — into an expected degree of damage for a specific type of structure or asset. Sometimes called a damage function or fragility curve, it sits at the core of the damage module within a [[Definition:Catastrophe model | catastrophe model]], bridging the gap between the physical hazard an event produces and the financial [[Definition:Loss | loss]] an insurer can expect to pay.

🔧 Within a [[Definition:Cat model | cat model's]] architecture, the vulnerability function takes inputs from the hazard module — for instance, peak gust wind speeds at a particular location — and maps them against building characteristics such as construction type, occupancy class, building height, and year of construction. The output is typically expressed as a mean damage ratio (the expected [[Definition:Insured loss | insured loss]] as a percentage of the [[Definition:Total insured value (TIV) | total insured value]]) along with an associated uncertainty distribution. [[Definition:Reinsurance | Reinsurers]], primary [[Definition:Insurance carrier | carriers]], and [[Definition:Exposure management | exposure management]] teams rely on these functions when running [[Definition:Probable maximum loss (PML) | probable maximum loss]] analyses and setting [[Definition:Risk appetite | risk appetite]] thresholds. Vendors like AIR, RMS, and CoreLogic each develop proprietary vulnerability functions calibrated against historical [[Definition:Claims | claims]] data and engineering studies, and differences among them can produce materially divergent loss estimates for the same portfolio.

🎯 Getting the vulnerability function right has outsized consequences for pricing accuracy, [[Definition:Capital allocation | capital allocation]], and [[Definition:Reserving | reserve]] adequacy. An overly optimistic function underestimates tail risk and can leave an insurer exposed after a major [[Definition:Catastrophe | catastrophe]], while an overly conservative one inflates [[Definition:Premium | premiums]] and erodes competitiveness. As climate patterns shift and building codes evolve, insurers and modelers must continuously update these functions — incorporating post-event reconnaissance data, laboratory testing, and advances in structural engineering — to ensure they reflect current reality rather than outdated assumptions.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Catastrophe model]]
* [[Definition:Probable maximum loss (PML)]]
* [[Definition:Exposure management]]
* [[Definition:Total insured value (TIV)]]
* [[Definition:Hazard module]]
* [[Definition:Mean damage ratio]]
{{Div col end}}

Definition:Vulnerability function - Revision history

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