Florida public hurricane loss model: Research in multi-disciplinary system integration assisting government policy making

Homeowner insurance rate making is an important public policy issue in the State of Florida. The State of Florida has over 2 trillion dollars of residential properties exposed to hurricane risk. The State has declared that it shall adopt public policy to encourage the use of sophisticated actuarial methods to assure that consumers are charged lawful insurance rates ( Section 627.0628(1)(a)). To that effect, the State's insurance regulatory agency, the Florida Office of Insurance Regulation (OIR), sponsored the development of a Florida Public Hurricane Loss Model (FPHLM) to assess the risk and project insured residential losses. The FPHLM is an open and public model that has been developed primarily by university experts without influence from either the insurance industry or the state regulators. It is open to public scrutiny and provides an understandable baseline to check the assumptions as well as the outputs of the proprietary models. The FPHLM thus makes the rate evaluation process more objective and less political. It enables the state to justify rejecting or accepting rate increases based on an independent and transparent model, rather than a process that can be influenced politically. As a multi-disciplinary large scale research project with an iterative and incremental development cycle, the FPHLM system development and integration faced numerous challenges varying from technical factors to project management aspects. This paper will discuss the research experiences accumulated during the development of the FPHLM and the impact it has had on the homeowner insurance rate filing process in the State of Florida. (C) 2008 Elsevier Inc. All rights reserved.