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Daily Briefing Update

May 24th, 2007 1:17 PM by Ron Mastrodonato

Tax-funded storm model paints a grimmer picture

TALLAHASSEE, Fla. – May 9, 2007 – Even as Gov. Charlie Crist and other politicians seek to lower property insurance rates, other forces are trying to push them higher.

This week, a commission of experts is reviewing the computer catastrophe models that companies use to help set rates, and the worst news so far comes from an unexpected source: a model paid for with taxpayer money.

This public model, a kind of software, was created as a check and balance against private models. But in tests last month, a team that reports to House Speaker Marco Rubio found that the public model projects the highest losses of all -- as much as double other models.

That means it could be used to justify the highest rates of all, too, and with imprint of software designed to protect consumers.

Some representatives of the Florida Office of Insurance Regulation have been praising the public model for the past year, but others saw signs of trouble.

Alex Sink, the state’s chief financial officer, is concerned about the public model, said her spokeswoman Tara Klimek. Last year, an analyst with Sink’s office noticed that one private insurance company switched its rate filing justification from a private model to the public one.

“Once it was put into the public model, the rates were actually higher,” Klimek said.

Members of the Florida Commission on Hurricane Loss Prevention Methodology, which is meeting this week in Tallahassee, noted the team that built the public model may be able to fix any flaws and still gain approval this week.

Without formal approval, the model cannot be used to help set rates.

There’s more potential bad news for consumers.

On Thursday, the commission will vote on a private model from Risk Management Solutions of Newark, Calif. It predicts losses 25 percent to 50 percent higher than the previous version developed by the company.

RMS shifted from the traditional approach of using 100 years of historical data on storms and an approach that estimates average frequency and severity to a new approach, one that estimates patterns between 2006 and 2010.

The RMS model has been criticized by scientists and consumer advocates, and the state of Louisiana recently put its use on hold pending a decision by the Florida commission. Florida conducts the most detailed model review process in the nation.

The Florida public model has been in the works for years.

It was created by a team at Florida International University in Miami, with $2.7 million provided by the Legislature.

According to a news release issued by the university when the model was unveiled last year, the project was initiated by U.S. Sen. Bill Nelson when he was state insurance commissioner, and his successor, Tom Gallagher, was responsible for securing funding.

“University researchers and associates have produced a transparent model independent of the insurance industry and state regulatory agencies,” said Shahid Hamid, professor of finance at FIU and the leader of the project.

So far, things may not have turned out quite that way.

Bob Milligan, Florida’s insurance consumer advocate, is part of the model review commission and he’s also concerned about the initial tests of the public model.

If the public model shows the highest possible losses from future storms, then everybody will use it to set rates, Milligan said.

“And you’re up the creek without a paddle,” he said.

Copyright © 2007 Tampa Tribune, Fla., Kevin Begos. Distributed by McClatchy-Tribune Information Services.

Related:
Experts agree 2007 to be active hurricane season in U.S

 
NAR: Soft landing for home sales

WASHINGTON – May 9, 2007 – The National Association of Realtors® (NAR) still expects more than 6 million existing-home sales in 2007, but stricter lending standards and a decline in subprime mortgage origination have contributed to somewhat lowered expectations compared with earlier forecasts, according to the latest projections from NAR.

Lawrence Yun, NAR senior economist, says one benefit for the market is the disappearance of speculative behavior, which contributed to abnormal price growth.

“Home buyers today are purchasing for the long term, generally with a realistic expectation of modest gains over time,” Yun says. “Housing first and foremost is shelter. Second, it’s a long-term investment that slowly builds the greatest amount of wealth for most families. It’s good that we’re getting beyond the tendency of some buyers to view housing as a temporary asset to accumulate short-term wealth, which is not to be expected in a normal market.”

Housing projections

NAR expects the following in home sales this year:

• Existing-home sales are likely to total 6.29 million this year and 6.49 million in 2008, compared with 6.48 million last year.
• New-home sales, projected at 864,000 in 2007 and 936,000 next year, will be lower than the 1.05 million in 2006.
• Housing starts should total 1.46 million units this year and 1.52 million in 2008, down from 1.80 million last year.

“If it weren’t for a favorable economic backdrop, housing would probably have a hard landing,” Yun says. “As it is, we see this as a soft landing with home sales rising gradually in the second half of the year and prices recovering a bit later.”

The 30-year fixed-rate mortgage should rise slowly to 6.5 percent by the fourth quarter, NAR predicts. Last week, Freddie Mac reported the 30-year rate was 6.16 percent.

The national median existing-home price is forecast to slip 1 percent to $219,800 this year, and then rise 1.4 percent in 2008. The median new-home price is expected to be essentially unchanged at $246,400 in 2007, and then rise 2.2 percent next year.

The unemployment rate will probably average 4.6 percent this year, unchanged from 2006. Inflation, as measured by the Consumer Price Index, is estimated to decline to 2.5 percent in 2007, down from 3.2 percent last year. Growth in the U.S. gross domestic product is projected at 2.1 percent in 2007, lower than the 3.3 percent growth last year. Inflation-adjusted disposable personal income should rise 2.6 percent in 2007, the same as last year.

Source: Realtor® Magazine Online

© 2007 FLORIDA ASSOCIATION OF REALTORS®
 
 
Citizens schedules first policyholder forum

FORT LAUDERDALE – May 9, 2007 – Citizens Property Insurance Corporation will hold an open forum May 15 in Fort Lauderdale for policyholders and members of the public to discuss customer service plans, solicit suggestions for improvement and offer individual help for policyholders with questions about their coverage.
 
“This forum is the first of four we will hold across the state so our policyholders and members of the public can meet us face-to-face and share their ideas about how we can improve our customer service,” says Scott Wallace, president of Citizens. “We realize Citizens has become critically important to Florida and its residents and, while we have improved our customer service benchmarks significantly in the past 18 months, we want everyone to know we are open to all suggestions and we will continue our efforts to provide the best customer service possible.”
 
Bruce Douglas, chairman of the Citizens Board of Governors, will open the forum at 2 p.m. His remarks will be followed by presentations covering customer service improvements, rate reductions and rollbacks, mitigation, new options for wind coverage and a question-and-answer session with the audience.  Citizens has not yet announced dates and locations for the remaining three policyholder forums.
 
The first forum is open to the public and takes place at the Sheraton Fort Lauderdale Airport Hotel, 1825 Griffin Rd., in Dania. For more information on the meeting or Citizens, visit the company’s Web site at: http://www.citizensfla.com

© 2007 FLORIDA ASSOCIATION OF REALTORS® 
 
 
 
Posted in:General
Posted by Ron Mastrodonato on May 24th, 2007 1:17 PM

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