Florida’s residential property insurance market is bracing for even more volatility after the state’s modeling commission approved the use of the new Risk Management Services (RMS) catastrophe model.
The Florida Commission on Hurricane Loss Projection Methodology approved the RMS U.S. Model Version 11.0, which means it can now be used by insurers to calculate their potential hurricane loss exposure as part of a rate filing. The controversial model has been circulating for months and has redrawn the state’s map when it comes to hurricane risk. Prior to the model, conventional thinking held property along the coast represented a higher probability of damage than inland areas. As a result, most private companies retreated from the coast and wrote only inland policies. The RMS model, however, is rewriting those assumptions and could very well change the business models insurers have been using for decades.
In a statement released by RMS officials, they indicated the new model calculated that the state’s overall expected losses had increased by 6.5 percent. Much of that increase is being driven by a revaluation of how the risk of hurricane damage is spread throughout the state. While stating that coastal locations are still at a higher risks than inland areas, RMS officials said the relative differences between the two regions is far less than they were thought to be.
“According to the new data and research, wind-risk in some coastal locations, such as Miami-Dade, is lower than had previously been understood,” said RMS in a statement. “At the same time, advances in our understanding of how hurricanes decay over land show that the risk in Central Florida, in areas such as Orange County, is actually higher than understood.”
Jack Nicholson, chief operating officer for the Florida Hurricane Catastrophe Fund and a member of the commission, said the model’s overall numbers were “not out-of-line.” The model pegged its loss costs at 6.7 percent and calculated a one-in-one hundred year probable maximum loss at $52 billion based on the Cat Fund’s numbers. “It is a very sound model,” he said. “But there is going to be a big change between last year and this year.”
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