Just another thing for homeowners to worry about

Marketplace Staff Apr 3, 2007

Just another thing for homeowners to worry about

Marketplace Staff Apr 3, 2007

KAI RYSSDAL: I don’t know when the last time they got a hurricane in Denver was. But the Tropical Meteorology Project at Colorado State University thinks the 2007 hurricane season’s gonna be a big one. Nine storms and at least one major hurricane that’s going to hit the coast someplace.

If you live on Florida’s Atlantic side or on the Gulf of Mexico, chances are your insurance rates have shot up the past few years. When they go to justify those increases, insurers often use computerized risk models. Now, one modeling company has stared incorporating climate change into its projections. Which has landed it squarely in the eye of a political storm. Geoff Brumfiel reports.

GEOFF BRUMFIEL: Hurricanes are all too familiar to most Floridians.

[SOUND: Weathermen predicting storms]

In the past decade, almost half the storms to hit the U.S. have struck the Sunshine State. In many costal areas, property insurance has more than doubled since 2004.

KEVIN MCCARTY: One of the number one political issues in the last election for Florida was the cost of homeowners’ insurance.

Kevin McCarty is the state’ s insurance commissioner. He says the rise in insurance costs has partly to do with how companies project future losses.

Companies have taken to justifying rate hikes through “risk models” built by independent firms. Those models can use data from past hurricanes to predict future ones.

But this year, one company called Risk Management Solutions revised their model to include climate change.

MITCH SATTLER: We believe that it’s scientific consensus is that this is the current risk, and we’re just trying to reflect the risk in the most appropriate manner.

That’s Mitch Sattler, vice president for public policy at RMS. Over the next five years, the new model shows that category 3 through 5 storms are 36 percent more likely to strike the state than previously thought.

Georgia Tech hurricane researcher Judith Curry.

JUDITH CURRY: Warmer temperatures in the North Atlantic mean more hurricanes and stronger hurricanes.

But Curry says predicting global warming’s precise effect is tricky. Global warming might have a substantial impact, or it might not.

CURRY: I mean that’s what insurance is all about.

The devil is in the details of RMS’s calculations. And unlike academic studies on climate change, they keep those models under wraps. If regulators look at them directly, they become part of the public record. Companies argue that violates trade secrets.

Mitch Sattler.

MITCH SATTLER: The models are actually built on data and data is sort of the lifeline of these models. And that’s something that we just don’t want in the hands of our four or five competitors.

Some Florida legislators say that RMS’s secretiveness helps insurers justify more rate hikes.

Insurance Commissioner McCarty is frustrated.

MCCARTY: Being able to bring transparency to this process is thwarted by their . . . by this trade secret protection that they insist upon.

Some in the scientific community agree.

Mark Frankel is with the American Association for the Advancement of Science, the nation’s largest scientific organization.

MARK FRANKEL: It seems to me they have a responsibility to make sure that the model is thoroughly vetted and peer-reviewed by very capable scientists.

A compromise may be in the offing. McCarty says a group of independent experts has signed a non-disclosure agreement so it can review the new model.

The commission will decide in May whether insurers can use the model. That’ll be just before the beginning of this year’s hurricane season.

In Washington, I’m Geoff Brumfiel for Marketplace.

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