Florida Commission on Hurricane Loss Projection Methodology Approves AIR Model V11.0
May 21, 2009
On Tuesday, May 19, 2009, the Florida Commission on Hurricane Loss Projection Methodology (“Commission”) reviewed and approved the AIR Worldwide Corporation Atlantic Tropical Cyclone Model V11.0 (“AIR V11.0”) as part of its regular meeting agenda.
The following is a brief summary of discussions and actions that occurred during the meeting. To view the meeting agenda, click here.
Prior to reviewing AIR V11.0, the Commission discussed problems with audit findings listed in Form A-6 relating to Output Ranges, which may be viewed by clicking here.
Initially, the A-6 Form was not completed by modeling companies as directed; therefore, the standards were unverifiable. After further clarification from the Commission, the modelers (AIR, in particular) provided new output ranges based on the audit, after which their respective models were reviewed and approved by the Commission.
The Commission reviewed and verified AIR V11.0 under the 2008 Standards to Determine Acceptability. AIR representatives provided a detailed summary of their model and its components, which may be viewed by clicking here.
The 2008 model updates were minimally refined by taking into consideration zip code and stochastic catalog updates. Below is a brief description of the Standards that were verified and approved with limited discussion.
General Standards
- G-1 Scope of the computer model and its implementation
- G-2 Qualifications of modeler personnel and consultants
- G-3 Risk location
- G-4 Independence of model components
- G-5 Editorial compliance
The Commission approved all of the General Standards.
Meteorological Standards
- M-1 Base hurricane storm set
- M-2 Hurricane parameters and characteristics
- M-3 Hurricane probabilities
- M-4 Hurricane wind field structure
- Commission members noted modelers should focus on updating this standard above all others. Two members voted in opposition to approving this standard. This was the lone standard that did not receive unanimous approval.
- M-5 Landfall and over-land weakening methodologies
- M-6 Logical relationships of hurricane characteristics
The Commission approved all of the Meteorological Standards.
Vulnerability Standards
- V-1 Derivation of vulnerability functions
- V-2 Mitigation measures
The Commission approved all of the Vulnerability Standards.
Actuarial Standards
- A-1 Modeled loss costs and probable maximum loss levels
- A-2 Underwriting assumptions
- A-3 Loss cost projections and probable maximum loss levels
- A-4 Demand surge
- A-5 User inputs
- A-6 Logical relationship to risk
- A-7 Deductibles and policy limits
- A-8 Contents
- A-9 Additional living expense
- A-10 Output ranges
- A-11 Probably maximum loss
The Commission approved all of the Actuarial Standards.
Statistical Standards
- S-1 Modeled results and goodness-of-fit
- S-2 Sensitivity analysis for model output
- S-3 Uncertainty analysis for model output
- S-4 County-level aggregation
- S-5 Replication of known hurricane losses
- S-6 Comparison of projected hurricane loss costs
The Commission adopted all of the Statistical Standards.
Computer Standards
- C-1 Documentation
- C-2 Requirements
- C-3 Model architecture and component design
- C-4 Implementation
- C-5 Verification
- C-6 Model maintenance and revision
- C-7 Security
The Commission adopted all of the Computer Standards.
The AIR model was approved following the Commission’s adoption of all of the 2008 Model Standards.
Also discussed were changes to 627.0628, F.S effected by House Bill 1495, which would require the Commission to hold meetings to review discounts, credits, and other rate differentials, as well as reductions in deductibles relating to windstorm mitigation.
The Commission also would be required to submit a report providing mitigation discount system improvement recommendations to the Governor, Cabinet and Legislature by February 1, 2010. Commission Chairman Randy Dumm noted that the group will not discuss the mitigation system in detail until the bill becomes law; however, the Commission preliminarily agreed to assign a Committee to review the issue in June 2009, and report to the Commission in July. Commission members noted budget constraints in regard to accomplishing what is a significant project with no funding mechanism.
The Commission also discussed the impact of Senate Bill 1758, which would require that revisions be made to models “every odd year,” rather than annually. The Commission members were unclear as to the legislative intent of the bill, but the modelers indicated a desire to submit models for review every other year.
In lieu of formal revision meetings, the Commission may hold workshops. Commissioners stressed, however, that any change affecting a loss cost would have to be approved by the Commission, otherwise a model should not be deemed as approved by the Florida Office of Insurance Regulation.
Chairman Dumm noted that this legislation could be changed next year. Commissioners indicated their desire to work with legislative staff for clarity on legislative intent.
Finally, Commissioners briefly addressed recent issues regarding demand surge that were specifically addressed by an article from National Underwriter Magazine reporting that higher pricing from demand surge is not based on increased labor costs, but rather, on insurance adjustments. The Commission members did not accept or reject this contention. To view the article, entitled “Demand Surge Not Driven By Economic Demand” from National Underwriter, click here. To view correspondence related to the article, click here.
The Commission will meet next on June 2, 2009, to continue its review of hurricane loss projection models under the 2008 Standards.
Should you have any questions or comments, please do not hesitate to contact Colodny Fass.
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