Karen Clark and Company has recently published findings indicating that the insurance industry’s revised hurricane damage models have not performed well over the past three years. Their conclusion is:

"Three years into the application of near term hurricane models, the model predictions have not performed well. While all three major catastrophe modeling companies predicted significantly elevated hurricane activity and losses for the period 2006 through 2010, two of the past three years have been below average. Catastrophe models are designed to simulate thousands of potential scenarios of what could happen to an insurance company – not what will happen in any given year or short time period. While catastrophe models, used appropriately, can provide credible estimates of a company’s potential loss experience, the models are not able to predict where, when or how big actual events will be. While a definitive conclusion on the near term hurricane models cannot yet be made, early indications are that a five year period is too short for hurricane loss estimation." 

Insurance companies used these models to justify the requests for outrageous rate increases in the Gulf Coast states. Most consumer advocates claimed that the insurance modeling companies used a short five year modeling forcast to placate insurer interests by recovering losses from the 2004 and 2005 storm seasons. The Florida Commission on Hurricane Loss Projection Methodology rejected some of these models. It is anybody’s guess about how these incorrect models lead many insurers to leave the Gulf Coast Region or write less business in the coastal insurance markets. 

I came across the Karen Clark report while studying information for the Citizens Property Insurance Corporation Mission Review Task Force. Our next meeting is on January 6 in Tampa, and we will vote on recommendations to the Florida Legislature. One of the recurrent topics of interest to everybody should be the insurability themes found in these reports and discussed in Task Force meetings. Insurers prefer to insure newer structures. My impression is that older homes have more losses and more severe losses for a number of reasons. Two significant reasons are worn out roofs and failing plumbing. Old roofs have a tendency to leak or allow water intrusion during a rain or windstorm. Old plumbing breakage causes non-catastrophic, but significant, water damage. The lesson for property owners of older structures wanting to lower rates and have more insurers competing for your business is to repair, maintain, or replace old roof and plumbing systems. Potential purchasers and sellers of real estate must consider these two areas of domestic infrastructure as much as the value of the aesthetics of newly remodeled kitchen and bath areas. In many cases, the deductible would exceed the cost of improvements to the roof and plumbing systems of most structures.