Louisiana Insurance Commissioner Jim Donelon has told insurers to stop using a controversial hurricane loss-projection model until it is certified by a Florida certification unit.
At issue is a model developed by Risk Management Solutions Inc., which was criticized last month by two consumer groups as "severely flawed."
Instead of using 100 years of data, the model–RMS 6.0–uses rolling five-year periods. That near-term model, according to the Washington-based Consumer Federation of America (CFA) and the Center for Economic Justice (CEJ) in Austin, Texas, has led to rate increases of 25 percent in Maine, and 50 percent or more along the Gulf Coast.
Although some Louisiana insurers have already put through rate increases using the new projections, the commissioner said he was not aware whether the RMS model had been accepted for use in his state.
Mr. Donelon said he believed the model first required approval from the Florida Commission on Hurricane Loss Projection Methodology. That state-created independent panel of experts tests private hurricane computer models and actuarial models against its own proprietary model.
The commissioner said he will not ask companies that have implemented higher rates to undo them, but has asked insurers that have not put higher rates into effect to wait until the Florida certification process has been completed.
Last month, in response to criticism of its product, Newark, Calif.-based RMS said its model "reflects the widespread agreement among researchers that hurricane activity in the North Atlantic has increased since 1995, and that this period of elevated activity will last for at least another 10 years. The long-term historical average thus significantly underestimates the hazard posed by hurricanes for the foreseeable future."
According to RMS, "there are clear limitations to models that produce a static view of risk that relies solely on the historical long-term average. Ignoring this fundamental fact only steers discussion away from the vital issue of determining the best actions for mitigation and other risk reduction measures."
RMS said then that it had submitted its model to Florida for approval, "and we fully expect it will recognize the rigorous science upon which our work is based."
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