RMS Hurricane Model Update Coming; Lower Risk Indications Expected

July 15, 2013 by Susanne Sclafane

When RMS releases an update for the catastrophe modeling firm’s North American Hurricane model later this month, lower loss exposure estimates are expected, according to a representative of the firm.

“It will be very variable according to geography and lines of business. So we’re not making any statements around magnitude at this point,” says Claire Souch, senior vice president of model solutions at RMS.

Putting individual portfolio specifics aside, overall, “we’re expecting a decrease in risk results as a broad generalization,” Souch says, noting that the update involves changes in assumptions about hurricane activity rates and storm-surge loss payouts.

Explaining the new forecast of hurricane activity, she says it will decrease risk exposure results in general because while more and more hurricanes have been forming in the Atlantic basin in recent years, “they’re not translating directly to the number of hurricanes that make landfall.”

“The last several years, in fact, have been very quiet from the U.S.-landfalling perspective.”

Turning to storm surge, she refers to “issues around uninsured loss potential” under residential policies. These are essentially questions around whether an insurance company has to pay a water-damage claim that isn’t specifically covered under the terms of the policy, she confirms.

“We’re seeing the insurance companies really tighten up their claims handling in recent years to mitigate and reduce their risk of that compared to, for example, in the mid-2000s where it was a really big issue,” she says.

Souch says the next model update on the horizon after this is RMS’ severe storm model, with the update planned in early 2014. “We’ve been doing a lot of claims analysis work and research into the meteorology of severe storms,” she says, noting that even though the last few years have been very quiet from a hurricane-landfalling perspective, “we have had some very severe hail and tornado seasons, with record numbers and record levels of intensity of tornadoes.”

The 2014 update will incorporate new research and science as well as claims data analysis, Souch says.