Hurricane Pricing Model Calculates New Rates for One Florida Deductible

January 12, 2005

Florida bore the brunt of the damage from the 2004 hurricane season. ISO’s Property Claim Services unit estimates the state incurred almost $18 of the $22 billion total insured losses. According to the Florida House of Representatives, at least 30,000 policyholders experienced damage from two or more hurricanes, prompting new legislation that goes into effect May 1.

The new law, says that residential policyholders will have one annual hurricane deductible that will cover multiple events. After the deductible is exhausted, losses from any additional hurricanes that year would be subject to an “all other perils” deductible for the policy, which is typically $500. Hurricane deductibles in Florida typically range from 2 to 5 percent of the insured value of the home.

“This is a critical issue for all residential insurers writing in Florida as it affects their pricing algorithms, which are currently based on an occurrence deductible,” explained Michael Gannon, an AIR Worldwide Corp. spokesman. “Insurers need to quickly assess the impact of the new law on their portfolios to apply with the state for the necessary price adjustments in time for the May 1 implementation.”

In response, AIR has adapted its hurricane model to account for Florida’s new annual deductible and is in a position to help insurers with their assessments. AIR Worldwide Corp.’s detailed catastrophe modeling system now incorporates the changes mandated by the legislature into its software to make it easy for clients to analyze the impact of deductible changes on insurer portfolios. The changes enable AIR to analyze the impact of deductible changes on insurer portfolios.

A member of the ISO family of companies, AIR was founded in 1987 to provide its insurance, reinsurance, corporate and government clients with risk modeling software and consulting services that produce consistent and reliable results.

“The action recently taken by Florida lawmakers will impact insurer portfolios in the coming year and may prompt some to file applications for rate changes,” Uday Virkud, senior vice president at AIR said. “The flexible architecture of our catastrophe models and systems enables AIR and our clients to rapidly respond to the deductible changes enacted in Florida.”

Michael Cratem, vice president at Sunshine State, which writes a majority of its business in Florida says it’s critical to quickly understand how this new legislation will impact insurance companies books of business, since file rate adjustments have to be filed before May 1. “AIR’s ability to analyze the impact of calendar-year hurricane deductibles will provide insurers with the information necessary to ensure they are charging appropriate rates and to support rate filings.”

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