New Hurricane Methodology Passes Florida Commission Muster

This week Risk Management Solutions (RMS, Newark, CA) debuted a new storm set methodology in its US hurricane model for review by the Florida Commission on Hurricane Loss Projection Methodology and was unanimously approved on all criteria for re-certification for use in establishing residential insurance rates in the state. Florida, which has the highest exposure to hurricane risk of all states, and which saw insurance rates skyrocket in the wake of Hurricane Andrew in 1992, has the most rigorous review process of any state.

Unlike previous methodologies, which generate potential storm tracks from defined points near the US coast, RMS's new storm set captures the full lifetime track and central pressure of each simulated hurricane, from formation in the Atlantic hurricane "basin," to the storm's decay and extinction. The storm set enables detailed capture of storm behavior for hurricanes making multiple landfalls or those whose paths follow the coastline, according to Guy Morrow, vice president of global risk modeling, RMS.

With the addition of the new methodology, according to Morrow, "our model now has the capability to estimate potential losses from storms going all the way through the Caribbean," rather than looking at hurricane events related to the Caribbean or the United States in isolation. An important benefit of such basin-wide modeling capability, Morrow adds, is that "insurers who have exposures that are spread in the Caribbean as well as the United States now have a methodology to assess what the total losses of such a storm could be."

The new methodology appears after a development process of about four years, Morrow says. "A year ago we released a whole new basin-wide Caribbean model that covered the Caribbean; now we've extended that in the US," he says. RMS's July 30 presentation to the Florida commission was the first time "the model has gone through a fairly extensive review by some outside technical experts and been approved," he adds.

Choosing this year to present to the Florida commission was a somewhat gutsy move, according to Morrow. "We had been pushing ahead to advance our technology, and whenever you do that, the portion of the model you change gets reviewed in detail by the whole commission process. Otherwise it would be a very quick process," he adds.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio