A report released yesterday finds that short-term hurricane damage models, designed to project insured losses in the United States from Atlantic hurricanes for the past five-years, have significantly overestimated losses for the cumulative 2006 through 2009 seasons.
From the press release:
“This latest study further supports our previous findings that a short time horizon is not sufficient for credibly estimating insured losses from hurricanes,” said Karen Clark, President and CEO, Karen Clark & Company. “. . . Given all the uncertainties, near term projections do not have sufficient credibility to be used for important insurance applications such as product pricing and establishing solvency standards.” [emphasis added]
These models, first used in the 1980s, use decades of historical data to provide insurance companies better estimates of the probabilities of losses of different sizes on specific portfolios of insured properties.
Frustrating news for coastal communities where insurance companies are pulling out of the market, but to be clear, nobody’s saying that coastal areas in hurricane zones aren’t going to be hit, just that it’s extremely difficult to predict when.
Near Term Hurricane Models Performance Update, January 2010 (PDF, 827 KB).