A new risk model from Karen Clark & Company (KCC), which contains over 90,000 hurricanes, estimates that a strong Category 5 storm making landfall near Miami would drive re/insured residential losses of more than $200 billion.
KCC explains that one of the worse-case scenarios for the state of Florida is a landfall near Miami with a track continuing north through areas of Fort Lauderdale and Palm Beach, which is actually a very similar track to what hurricane Irma threatened at one stage.
The KCC model contains more than 90,000 hurricanes, and reveals that more than 35,000 of these impact Florida.
After more than a decade without a landfalling hurricane the state of Florida was in somewhat of a false sense of security, until the impacts of 2017 catastrophe events reminded residents, insurers, reinsurers and risk modellers that it’s always a matter of when and not if disaster strikes.
The new KCC model shows that the long run average annual losses, including all business lines, are roughly $7 billion for the state of Florida, which makes up about 50% of the U.S. total.
KCC explains that the Florida Commission on Hurricane Loss Projection Methodology (FCHLPM) has certified the KCC US Hurricane Reference Model Version 2.0, as implemented in RiskInsight 4.9.2. This is the first time the Florida Commission has certified a new model since 2006.
KCC Senior Vice President (SVP), Glen Daraskevich, commented: “The rigorous Florida review process consists of multiple steps, including an audit by the Commission’s Professional (“Pro”) Team of experts.
“The Pro Team spent seven days on site at KCC’s Boston offices thoroughly reviewing every component of the model. KCC’s own experts then presented the model to the Commission in Tallahassee where the 33 standards, spanning the disciplines of meteorology, wind engineering, statistics, actuarial and computer science were presented and voted on one-by-one. Every standard was unanimously approved by the Commission.”
The KCC US Hurricane model also introduced a number of innovations, which includes KCC’s unique Characteristic Events (CEs), which provides insurers and reinsurers with the ability to see exactly where they are most vulnerable to solvency-impairing losses.
KCC notes that while the traditional 100-year probable maximum loss (PML) metric is one way of providing a loss amount estimate for which an insurer has a 1% chance of exceeding in a year, unlike KCC’s CEs, it fails to discuss where or by how much this number can be exceeded.
The KCC model also includes a new catalogue generation process which enables robust, high-resolution loss analyses, as well as both transparent and verifiable model components.
“The Pro Team and the Commission saw the transparency of the KCC model. The KCC team was able to demonstrate visually the high resolution wind formulations and other aspects of the model, allowing the model components to be verified,” said Daraskevich.