If you live along the Gulf Coast, the Eastern Seaboard or almost anywhere in Florida, you pretty much expect that you’ll need to supplement your standard homeowners insurance policy with hurricane and/or flood insurance coverage. While damage from wind, rain and hail are typically covered, basic homeowners insurance everywhere almost always excludesdamage caused by flooding and natural disasters. And in high-risk hurricane areas, hurricanes are usually a specifically named exclusion. If you have this hurricane insurance special coverage, you may also have noticed that your rates — both premiums and deductibles — have been inching upward. Now comes news that folks living further inland may soon see their homeowners insurance premiums going up, too, thanks to adjustments made to a popular predictive hurricane risk modeling tool.
Risk Management Solutions, Inc. (RMS), is one of a handful of companies in the world that provides, according to its website, “products, services and expertise for the quantification and management of catastrophic risk….associated with natural perils such as earthquakes, hurricanes, and windstorms.” One of those products is risk modeling to help insurance companies predict the cost of natural disasters so that they can price your insurance coverage profitably.
RMS will release its new and improved hurricane model next month. According to an article in the January 11, 2011 Wall Street Journal, the updated model “incorporates lessons learned from recent hurricanes to increase its estimate for a 1-in-100 year loss for the typical insurance company by 15% to 25%.” That 1-in-100 measure is used by the insurance industry to evaluate its hurricane risk.
Apparently, RMS found that recent hurricanes including 2008’s Ike, did much more damage much further inland than anticipated by insurers. Ike, for example, wasn’t downgraded from hurricane status until it reached almost 200 miles inland from Texas Gulf Coast. As a result, insurers’ losses on claims from Ike came in a half billion dollars more than originally estimated.
While not all insurance companies use RMS’s models, or use them alone, the impact of the findings are being weighed across the entire industry. If you live in the expanded hurricane risk zone, you could well face higher premiums on homeowners insurance policies that currently include hurricane coverage; or you may see hurricane coverage specifically excluded from your policy. In that case, you’ll need to decide whether or not to shop for hurricane insurance to supplement your standard homeowner policy.