The Suncoast News
by Keith Morelli
June 8, 2011
With the 2011 hurricane season just a few days old, a study that insurance companies use to determine homeowner premiums has predicted that if Florida is hit, widespread damage to the interior part of the state could be greater than ever realized.
The study, submitted by the highly regarded Risk Management Solutions, has the insurance industry abuzz with speculation about how the findings’ ripples will affect insurance rates for homeowners.
Previously, homeowners in high-and-dry counties along the state’s interior spine seemed insulated from the raw destruction of hurricanes. But the Risk Management Solutions model – which uses some of the data collected in 2004 when a stream of hurricanes climbed up the state from south to north – has shaken that assumption.
The 422-page hurricane damage study recently was accepted by the state as one of a handful of models that insurance companies rely on to set rates. The news was not all bad, however. The study also concluded that wind damage along the coast may be less than expected because the buildings there are built better.
What this means for homeowners insurance rates is unclear, said Jim Massie, spokesman for the industry trade group Reinsurance Association of America.
“The models are just tools for companies to use in trying to assess their hurricane risk,” he said. Insurance rates could go up in interior parts of the state, he said, and they could go down along the coast, if companies incorporate the Risk Management Solutions model.
Such changes in rates must be approved by the state’s Office of Insurance Regulation, he said. The requests for rate changes are either approved, approved with modifications or rejected, he said.
Typically, Massie said, insurance companies use more than one model in determining their rates.
Risk Management Solutions of New Jersey compiled the actuarial report that contains hundreds of graphs and maps and highly technical engineering and meteorological data, and submitted it to the Florida Commission on Hurricane Loss Projection Methodology, which approved it last week as one of the five risk-management models used by insurers in setting rates.
The model also is used by insurers doing business in Florida in deciding whether or not to continue coverage in certain areas of the state, said Jack Nicholson, chief operating officer for Florida Hurricane Catastrophe Fund and member of the commission, which was created in 1995 to project hurricane losses for insurance purposes.
The commission is an independent body that works closely with the Florida Hurricane Catastrophe Fund, Nicholson said, and reviews and adopts risk management findings for insurers of property in Florida.
The notion that hurricanes can cause extensive damage to the interior of the state was realized seven years ago when a handful of storms marched up the peninsula, he said, devastating inland communities previously thought relatively safe.
“Most of these models have been around for some time,” he said, but only since then, has the interior of the state been considered as a place not-so-protected from a hurricane’s wind and rain.
Coastal properties still can be damaged by storm surge, he said, but buildings along the shore nowadays are built to withstand hurricane force winds, so the risk of widespread wind damage along the coast is less than in previous years.
Hurricane season began on June 1 and the National Oceanic and Atmospheric Administration has predicted between 12 and 18 tropical storms this summer, with six to 10 becoming hurricanes. Of those, NOAA expects three to six to grow into Category 3 or stronger.
Florida has not been hit by a hurricane since Wilma in 2005, and it’s not easy coming up with risk assessments in the meantime, according to one of the other models, submitted by AIR Worldwide Corp.
“Property values change, along with the costs of repair and replacement,” the report said. “Building materials and designs change and new structures may be more or less vulnerable to catastrophe events than were the old ones. New properties continue to be built in areas of high hazard.”
Ryan Ogaard, Risk Management’s senior vice president, said models are fine-tuned every two years. They have to be, with constant advances in technology and data collection, he said.
This year, there have been improved scientific findings in how hurricanes are shaped, he said, and how they behave as they travel over land.
Dynamics from past storms are included in the data, he said.
“We always want to make sure that when we build a model, we look at a historical storm, to make sure that the model does not contradict it; that the physics in the model represents that storm and the damage that happened in it.”
Generally, risk management hurricane damage models have a shelf life of five to seven years before they need to be overhauled from top to bottom, he said. Every few years, academics come up with new research that can be applied to models, he said.
The Risk Management Solutions model “incorporates the results of a three-year research and development project into how hurricanes decay over land, conducted with the University of Miami, together with detailed analysis of tens of thousands of wind-speed observations – 10 times more than were available in the last hazard update in 2003,” said a cover letter included in the filed documents.
Based on new data on how hurricanes behave as they cross the land, the letter said that “the risk in central Florida, in areas such as Orange County, is actually higher than previously understood.”
kmorelli@tampatrib.com (813) 259-7760
