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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.

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