Hurricane Model Shows Interior Risk is Rising

May 31, 2011

The following article was published in the Sunshine News on May 31, 2011:

Hurricane Model Shows Interior Risk Is Rising

By Kenric Ward

Florida beach-siders’ complaints about high and rising insurance costs may be heading inland this year.

A hurricane-modeling company that helps insurers predict the cost of megastorms has launched a program that shows some homeowners living far from the coast are at greater risk than previously thought.

Risk Management Solutions Inc.’s updated model doubles the one-in-100-years estimate for insured hurricane losses in some regions. That’s crucial to insurance companies and their rates.

The new model includes a better understanding of what fuels hurricanes in the warm waters of the Atlantic and Gulf of Mexico, and what causes the storms to lose intensity over land.

Large states such as Texas will likely be most affected by the new calculations. For example, Hurricane Ike wasn’t downgraded from a hurricane to a tropical storm until it reached Palestine, Texas, almost 200 miles inland, in 2008.

Since RMS last updated its model in 2003, data from violent storms that swept across the Florida peninsula in 2004 and 2005 are now being factored in and more carefully calibrated.

With 10 times more onshore and offshore wind observation data since the last hazard update, the model has been described as utilizing “the most complete historical observation archive currently possible for quantifying hurricane risk,” by associate professor Robert Hart at Florida State University.

“Claims analysis from Hurricane Ike reveals that roofs were damaged at much lower wind speeds than expected, given the understanding of construction quality and building codes,” said Claire Souch, vice president of natural catastrophe and portfolio solutions at RMS.

Climate factors such as high-intensity ultraviolet irradiation, high humidity and large annual variation in rainfall — all of which are found in inland Florida counties — were also found to significantly reduce the durability of certain roofing systems.

As a result, residents and businesses in the interior communities of the Sunshine State could see their insurance premiums rise.

“Portfolios consisting of noncoastal exposure and commercial or industrial business will generally show the largest increases,” RMS predicted.

“On a wind-only basis, portfolios concentrated along the coast will show the smallest increase in wind losses, and may even decrease in some regions,” the company said.

“The more qualified opinions you can factor into the equation, the more accurate you are likely to be,” Dick Luedke, a State Farm spokesman, told the Wall Street Journal.

William Stander, of the Florida Property Casualty Insurance Association, said his organization has “no formal position” on the new hurricane tool.

But, he added, “Individual insurers have expressed concerns it could have an impact on rates.”

On the other side, West Palm Beach attorney Patrick Tighe said homeowners should be skeptical of rate increases.

“What I’ve seen as an insurance lawyer is that the large insurers defend every case as if the claim is fraudulent,” says Tighe.

“They hardly ever settle, and the reserves they set aside for the cost of defending these cases is typically far more than the case is worth. So with all that money put aside, the insurance companies go to state regulators, plead poverty, and say they’ve got to have the rate increases.”

Tighe concluded: “Consumers need to keep an eye on the bottom line when insurance companies post astronomical profits yet tell us they need higher rates.”

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