Will the new RMS model have a significant impact on homeowner insurance premiums in Florida?

In this article from the Sarasota Herald-Tribune, Paige St. John makes the argument that the new version of the Risk Management Solutions (RMS) hurricane model set for release this spring will cause Florida homeowner insurance rate increases and more policy cancellations throughout the state of Florida.  Computer simulation models, such as the RMS RiskLink model, are widely used tools for estimating the cost of hurricane loss coverage for insured property.  The new RMS model is reported to greatly increase the estimated risk of hurricane losses to inland areas, which in turn would increase homeowners premiums.

However, it should be noted that homeowner insurance premiums are comprised of two components: Hurricane premium and Non-Hurricane premium.  Many of the inland areas for which the new model is predicting an increase in hurricane risk have premiums which include a larger Non-Hurricane component than Hurricane component.  The increase in hurricane risk resulting from the new model does not necessarily indicate that inland areas such as Ocala and Orlando will see a significant impact on overall premiums as predicted by the article.

There are additional factors that have to be considered relative to the new RMS model:

  • The new version of the model has not yet been accepted for use in Florida by the Florida Commission on Hurricane Loss Projection Methodology, a requirement that must be met before any insurance company can use in the model to modify rates in Florida;
  • Not all insurance companies that write property insurance in Florida use the RMS model to develop their rates; in fact there are four other models that have been accepted for use in Florida over the past few years; and,
  • There are many other factors that affect the rates charged by insurance companies in inland areas such as competition, changes in expense provisions, and changes in non-hurricane loss trends such as sinkhole, fire, crime and water damage.

What do you think?  Will the new RMS model have a significant impact on Florida homeowners insurance premiums?  Is the impact on rates for inland areas of the state accurately described in the article?  Are there other factors that have as much or more impact on inland Florida property insurance premiums?

One Response to “Will the new RMS model have a significant impact on homeowner insurance premiums in Florida?”

  1. Matt says:

    Last time I looked it was the non-hurricane loss ratios that were driving insurance company profitability. Unless things have changed or companies have addressed, rates will have to rise just to keep pace with the trend in the non-cat losses.

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