An issue that will arise with heightened salience if global warming continues to increase the frequency of hurricanes hitting the American coasts is how to assess rates charged by insurers covering windstorm loss. Rates that are too low lead to “irresponsible” insurers snapping up business but becoming insolvent when the time to pay the bills come dues.
But how is a regulator to tell if rates for protection against hurricanes are too low or too high? Particularly with the uncertainties surrounding global warming, modeling of the sort needed to determine a fair premium with any modicum of precision is very much a “dark art.”
Part I of Florida Statute Section 627 represents one regulatory attempt to get to the bottom of the matter, but one likely to cause difficulties for the private insurance market in Florida and, potentially, for Florida’s financial solvency. Section 627.0628 establishes a government body, the Florida Commission on Hurricane Loss Methodology (FCHLM) composed of the state “insurance consumer advocate,” five government officials and five faculty from Florida’s state university system. The commission reviews actuarial methodologies employed by insurance companies setting rates involving windstorm risk and evaluates a public model used by the largest insurer in the state, the government-created and operated Citizens Property Insurance Corporation.
The Florida regulatory scheme distinguishes between handling of “trade secret” or “proprietary” data and algorithms between proceedings before the Commission to determine the reliability of various computer models used in private industry and review of proposed insurance premiums based on those models. Submissions to the FCHLM that would disclose trade secrets “used in designing and constructing a hurricane loss model” are exempt from the various open meeting and sunshine rules that would otherwise apply. But findings made by FCHLM pursuant to these hearings are admissible in subsequent proceedings challenging rates only if government regulators have access to all the trade secret and proprietary information. The insurance industry protests that this provision devastates use of private models.
A public model has now been developed after several years of work. It relied on historic data from 1900-2003 to determine hurricane landfall frequency and intensity. Professor Chandler writes, “[t]hus, although the data set contained some of the high intensity years during the early twentieth century it basically ignored the view of many scientists that global warming had mooted out the relevance of that data. It also apparently disregarded HURDAT data from the 1880s and 1890s, a period of high hurricane intensity in the United States.”
Professor Chandler praises Florida for attempting the difficult task of assessing private models used to determine rates, but questions Florida’s choice to disregard global warming and to burden use of private models.
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