Hurricane risk models were a popular subject for insurers this week during the annual meeting of the Property Casualty Insurers Association of America. Earlier in the year, risk modeling agency Risk Management Solutions (RMS) introduced revisions to its U.S. hurricane model. The changes generated some controversy when they were first announced, but have since become an all-encompassing issue for property insurers in coastal regions. These insurers expressed their discontent for the new model during the meeting, citing multiple factors that have made it more costly to do business in the markets influenced by hurricanes.
RMS’ new model, the RiskLink Version 11, increased the risk exposure for many insurers writing policies along the East and Gulf Coast regions. The model was built upon data regarding losses associated with both tropical storms and hurricanes over the past several years. Insurers opposing the changes have said that the data used to build the model was too narrow. The reinsurance industry is now suggesting that insurers begin using several different risk models to price insurance, due to the nature of RMS’ updated model.
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The model suggests that many buildings, both residential and commercial, in coastal regions are at risk of being damaged by strong winds and floods. This has led many insurers to raise rates in these areas to accommodate the risk, but their efforts have been met with staunch opposition from insurance regulators. Consumers have also voiced their dissatisfaction with higher rates, especially has hurricanes, even in the East Coast, have been decidedly rare in recent years.
Insurers along the East Coast are likely to begin shying away from the RMS model.