Hurricane Commission Approves Model Acceptability Expiration Date Addendum

The Florida Commission on Hurricane Loss Projection Methodology (“Commission”) met on December 18, 2007 via conference call.

Because former Commission member General Bob Milligan has been appointed as interim executive director of the Florida State Board of Administration, his vacant seat now has been filled by acting Florida lnsurance Consumer Advocate Terry Butler.

The Commission meeting had been called specifically to review changes to the acceptability process for models that have been incorporated with the Commission’s recently published Report of Activities, and to clarify the Commission’s position on those changes and their long-term industry impact.

Although it was expressed by the Commission that these changes were incorporated to make the process more equitable for participating modelers, the concerns that have been expressed to the Commission since the adoption of new procedures include: how insurers may use the models to include new meteorological standards, overlapping time periods from model approval to rate filing by the same company, and the established annual February 28 expiration date for previously-approved models. 

As an example, the Commission discussed that under the current process, if one modeler that submitted a revised model during last year’s process was to submit a new model in March, 2008, it would be too late, since previously determined acceptability expires on February 28, 2008 unless the modeler has complied with certain procedures.

The Florida Office of Insurance Regulation, which is the ultimate arbiter of the process, could ostensibly deny a rate filing based upon the use of an expired model.

It was discussed that most insurers adhere to a 12-month rate-filing cycle.  Models are typically released for client use during May or June of a particular year.  If an insurer makes a rate filing or has a filing go into effect during April or May, and then does not make another rate filing until the following year, it becomes impossible for a company to use that model unless it was again determined to be acceptable by the Commission the following year.  Thus a significant time lapse may be involved between the time a rate filing is prepared and the time it is approved within the acceptability period for the model used in that filing.

One Commissioner offered that there may be the misperception by modelers that the recent changes in the acceptability process for models essentially constituted a form of authorization by the Commission for modelers not to make certain submissions if they deemed them unnecessary in order to avoid the Commission’s scrutiny.

A discussion took place regarding suggestions for various methods to eliminate the approval/time lapse issue in question, such as a delay or extension of  the acceptability expiration date for a period of up to three, six or 12 months.  

The suggestion of tying acceptability of models to rate filings was considered by several Commission members to be exceeding the Commission’s authority.

Two motions were made:

1. The first motion was to leave the Report of Activities as it was originally published.  This motion failed, although not unanimously.

2. A second motion was made to adopt the following addendum to the Report of Activities:

Addendum to the Report of Activities as of November 1, 2007:
In accordance with the Commission’s procedures, the determination of acceptability expires on September 1, 2008, unless the modeler has complied with the latest adopted procedures described in the Process for Determining the Acceptability of a Computer Simulation Model in order to maintain its acceptability and makes a submission by February 28, 2008.

This motion passed.

After the motion passed, Commissioner Eaglefeld expressed his concern over what he termed a “passive point of view” by the Commission regarding negative memos and press releases issued by certain modelers regarding the acceptability process.  He suggested that the Commission issue a specific public statement regarding “ . . .matters that remain unresolved by what we have done this morning . . . “

Another Commissioner did not agree with Mr. Eaglefeld, saying that the Commission “did not need to lend fuel to the fire.” 

Mr. Eaglefeld responded that if no-one on the Commission felt it necessary to refute accusations that the acceptability process standards did not permit “state-of-the-art” models, then he was not going to make any motion to the contrary just for the sake of making a point.

There being no further motions, the meeting was adjourned.

 

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