Faulty insurance models blamed for inaccurate storm damage estimates
By JEFF HARRINGTON
Published October 25, 2004
Wonder why the early damage estimates from Florida's hurricane quartet this season were all over the map?
Insurance companies have no one to blame but themselves, two researchers concluded in a recent study published in the November issue of the Bulletin of the American Meteorological Society .
Mark Johnson, a statistics professor at the University of Central Florida, and Chuck Watson, founder of Kinetic Analysis Corp. of Savannah, Ga., analyzed 324 combinations of public and private models that insurance companies use to predict wind speeds and damage and estimate storm losses.
They determined that insurers could do a much better job of anticipating claims' costs if they used more accurate models projecting storm winds and the severity of damage they likely will cause.
The researchers suggested that creating a centralized database of wind speeds during storms and requiring insurance companies to divulge more information about damage reports and claims would make the models more accurate. They also blasted insurance company models for not taking into account factors such as how saturated an area was before a storm struck and whether there was leftover debris from prior hurricanes.
Johnson and Watson are consultants to the Florida Commission on Hurricane Loss Projection Methodology, which reviews the public and private hurricane models that state regulators use to approve rates.
The range in models now being used presents "a major problem for regulators, government officials and consumers," the duo wrote in their report, because the choice of a model could result in premiums differing by several hundred dollars a year for the typical home.
Of course, Johnson and Watson do have a preferred model. They say their own process for projecting damage estimates uses "a more comprehensive database of properties than what insurance company models typically use."
