Better Tools, Better Risk Assessment

August 4, 2010

People living in Miami probably won’t be too surprised at the findings of a crew of Florida State University researchers. The city is vulnerable to strong hurricane winds. Yeah, not a news flash. Maybe the fact that Miami is Florida’s most vulnerable city jazzes the story up a bit. The real point, however, is that the team has developed a new tool for estimating the frequency of extreme winds at any given location. That has great significance in terms of emergency preparedness and risk calculation for insurance purposes.

In the press release, Jill C. Malmstadt, one of the authors of “Risk of Strong Hurricane Winds to Florida Cities” (November 2009, Journal of Applied Meteorology and Climatology), said, “Not unexpectedly, we found that the extreme wind risk from hurricanes varies across the state. Areas in the northeast, such as Jacksonville and in the Big Bend between Tampa and Tallahassee, have longer periods between occurrences of a given strong wind speed compared to areas such as Miami and Pensacola. That’s also where we found the highest annual threats of a catastrophic hurricane event.”

The researchers concluded that every 12 years on average Miami will experience winds of 112 mph or stronger, the equivalent of a Category 3 hurricane. The last time winds of that magnitude hit the city was Hurricane Wilma in 2005, so, by this study, the 2017 hurricane season will be a severe one for residents. Folks in Tallahassee, on the other hand, the least vulnerable locale in Florida, get winds of that velocity once every 500 years. Is it difficult to figure out how that’s going to effect insurance rates when plugged into existing risk calculations?

While the knee jerk response of most insurance customers is to react negatively to increased rates based on “perceived” risk, proven risk might make the medicine go down a little more easily. Of course, the model will have to be in use over a period of time before it gains acceptance in either meteorological or insurance circles, but to a large extent the basis of fair rates is better science. Customers have complained for years that risk assessment for insurance is a highly subjective and often influenced by prejudice and stereotype. Bottom line: better tools, better, more verifiable rates — especially in an area as prone to storm damage as Florida.