The residential property insurance marketplace in the state of Florida is expected to face an even greater amount of volatility after the modeling commission for the state approved the use of a new catastrophe model by Risk Management Services (RMS).
The RMS U.S. Model Version 11.0 was approved by the Florida Commission on Hurricane Loss Projection Methodology, which allows insurance companies to use it for the calculation of the potential exposure to hurricane loss. That said, this model has not been without controversy, especially in terms of its changes to the map of the state regarding its definition of hurricane risk areas.
Before the creation of this new model, it had been assumed that property located along the state’s coastline was at a greater risk of hurricane damage than those further inland. For this reason, the majority of privately owned businesses moved away from the coastline so that they could obtain strictly inland policies.
However, the thinking has changed with the use of the RMS model, and the business models that have been used by insurers for several decades may now need adjustment.
According to an RMS statement, it is anticipated that there would be a 6.5 percent increase to the overall losses forecasted for the state, as per the calculations made by the new model. Much of this increase reported by the RMS officials is the result of a new interpretation of the hurricane damage risk in areas throughout the entire state.
Though properties along the coastline are still believed to be at a higher risk than those inland, the officials from RMS explained that there was a notably smaller relative difference between these two areas than had been formerly accepted.
The RMS statement said that “According to the new data and research, wind-risk in some coastal locations, such as Miami-Dade, is lower than had previously been understood,” and that equally, improved comprehension of the decay of hurricanes as they move over land indicates that the risk in areas closer to the center of the state might be greater than had been previously believed.