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Florida adopts RMS hurricane model - Change is on the way

The Florida Commission on Hurricane Loss Projection Methodology has approved the RMS U.S. Model Version 11.0. Insurers in the state can now use the model as they calculate rates -- and rate increases -- for the coming year. This is the same insurance model we discussed last month, and this is the same insurance model that insurance companies have been circling with some apprehension since its national debut.

The results of Version 11 challenge the "old thinking" in some fundamental ways. If insurance companies end up adopting it, the results will likely be an even more volatile insurance market and unprecedented price fluctuations for property owners.

For example, coastal areas had been the traditional "hot spots" for insurance companies. In a catastrophic storm, those areas would be hardest hit by both wind and water. (Keep in mind that flood insurance is separate from property insurance.) Insurers would respond by charging more for policies along the coast, if they offered insurance in those areas at all.

The new model apparently changes that assumption. Risk in coastal areas is still high, according to Version 11, but not as high as it used to be. The difference between coastal and inland has decreased.

But --

According to RMS, the new model includes new information on the life cycle of hurricanes and what happens to them over land. For homeowners, that means that Central Florida is now more at risk for catastrophic wind-storm damage than before. The increased risk, of course, will likely translate into higher premiums.

The Florida Hurricane Catastrophe Fund endorses Version 11. A representative said he thought the numbers were reasonable, adding, "But there is going to be a big change between last year and this year." What kind of change, he didn't say.

Source: Insurance Journal, "Florida commission approves RMS hurricane model," Michael Adams, 06/07/2011

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