This story from Kevin Begos of the Tampa Tribune is an attention-grabber: one of the experts who provided input for a new computer model that is being used, in part, to justify higher insurance premiums along the Atlantic and Gulf coasts is calling out the model as unscientific. Florida’s governor is charging the model is put together with cooked numbers and says this:
"It almost doesn’t shock me because this industry has been taking remarkable advantage of our people," Crist said. "Big insurance is about to face a new day in Florida."
Really? This is from a state where insurance is and has been highly regulated and manipulated, leading to price distortions that ultimately have to be corrected to prevent the collapse of incentives to sell insurance at all. None of this is really much of a secret. Price controls have always had an ultimately detrimental effect, whether they were imposed by the later Roman emperors as a desperate stopgap or by Richard Nixon to pump up his margin of victory in 1972. As I’ve said before, calling Bismarck, North Dakota "the new Paris" doesn’t make it so, and setting an arbitrary price for something doesn’t stop its value from changing to reflect new realities.
That issue aside, the story contains some fascinating criticisms of the new hurricane model by Risk Management Solutions of Newark, Calif. These criticisms center around the use of a five-year timeline in the model, rather than a 100-year period.
Here are a couple key paragraphs:
Robert Hunter, a former Texas insurance commissioner now with the Consumer Federation of America, said the primary reason for the change to the five-year model appeared to be pressure from the insurance industry.
Thomas R. Knutson, a research meteorologist with the National Oceanic and Atmospheric Administration in Princeton, N.J., and another RMS expert panelist, said the five-year timeline didn’t come from the experts.
"I think that question was driven more by the needs of the insurance industry as opposed to the science," he said.
I don’t know about the science, but it is ironic that we’ve been hearing that we’re in the middle of a cycle of more hurricanes, and that climate change is going to lead to hurricanes of increasing destructive power, and the coasts are more developed than ever with more property and more value at risk, but when this translates into increased insurance rates, suddenly these facts and assumptions are considered fanciful.
Sidenote: In my hurry, the initial version of this post neglected to mention I first saw this story mentioned on the blog Beyond Katrina.