Posted On: August 8, 2007, 2:19 pm CDT

Posted By: Ratemaker

I know of no insurance company that would base rates on these forecasts. The rate approval process is just too darn long - the forecast would be obsolete by the time the rates went into effect.

The traditional method for factoring in such low-frequency, high-severity events like hurricanes was to determine a long-term average from observed data. Modern computing power has allowed insurers to supplement that historical data with theoretical "storm track data," as building methods and population shifts skew the historical data.

The goal is to determine a figure called the Probable Maximum Loss. This figure is typically expressed as a percentage of the property value, and that data is used to determine rates.