Florida Approves Use of Revised RMS Hurricane Model

A Florida state panel has approved the use of a new hurricane catastrophe model that is increasing many insurers’ exposure.

The Florida Commission on Hurricane Loss Projection Methodology has approved the Risk Management Solutions new U.S. Hurricane Model version 11.0 for use in residential rate filings submitted to the state’s Office of Insurance Regulation.

The new model calculates the probability of hurricane losses taking into effect wind, other weather characteristics, and the density of development within a given area.

The RMS model includes a number of changes, but most notable is the change in loss projections. Based on the results of a three-year research and development project conducted with the University of Miami, the model decreases the risk of losses in coastal areas while increasing them in inland areas.

As a result, many insurance companies that specialize in providing coverage to homeowners in inland areas have seen their exposure increase by 50 percent to 70 percent.

Insurers have already been feeling the impact of the new model, which reinsurers have been using to set rates.

Bracing for the possibility of higher reinsurance rates, lawmakers inserted in this year’s property bill a measure allowing insurers to make separate filings for rates on reinsurance and financial interments needed to make up for the loss of other reinsurance products. The increase is limited to one per year with the rates not to exceeded 15 percent per policyholder.

Topics Florida Catastrophe Natural Disasters Reinsurance Hurricane