A computer-simulated hurricane strike on Florida may sound like nothing more than an entertaining backdrop for a B-movie, but it could have a big impact on windstorm insurance rates.
Double digit rate decreases for commercial windstorm insurance appear likely to occur because of the less severe storm impact projected by the new computer model, said Ryan Cassidy, a director with Tampa-based insurance broker Franklin Street.
The model is called Risk Management Solutions (RMS) 13 and it’s widely used by insurers, reinsurers and underwriters to set rates. In updating the 2011 model for 2013, it showed more favorable results for Florida for the next five years of storms, said Cassidy, who works in Fort Lauderdale.
Firstly, the new model projected that fewer hurricanes would make landfall in Florida, he said. The new model also separates the damages from storm surge and flooding, which is covered by flood insurance as opposed to windstorm, from wind- and storm-related damage. The 2011 model wasn’t able to separate them, so it showed less damage in the new model, he said.
This impacts the residential market as well, Cassidy added.
“There is no better model out there to project what a hurricane would do to a specific address based on the property characteristics,” Cassidy said. “Within the next 12 months, depending on the carrier, we should start seeing these changes as underwriters start using the new model.”
Patrick Lacy, VP of sales and marketing at Delray Beach-based Plastridge Insurance, said it’s not automatic that a more favorable RMS 13 for Florida will lead to rate decreases. If individual insurance companies decide they want to lower rates to compete for more customers, they could use RMS 13 to justify lower reinsurance costs and pass on the premium reductions to customers, he said. However, some insurers may take a more conservative approach and keep rates high to build their reserves.