C Comparison of Hurricane Loss Comparison of Hurricane Loss C i - PowerPoint PPT Presentation

C Comparison of Hurricane Loss Comparison of Hurricane Loss C i i f H f H i i L L Projection Models Projection Models FSU Storm Center FSU Storm Center June 19, 2008 June 19, 2008 1

Hurricane Modeling Background Hurricane Modeling Background • Traditional methods of projecting hurricane loss cost p j g were considered inadequate after Hurricane Andrew. • Hurricane modeling provided a more scientific approach, but has been considered controversial due to the proprietary nature of the models. p p y • The Legislature recognized the need for expert evaluation of computer models to resolve conflicts among actuarial professionals and created a Commission. Co ss o 2

Creation of Commission Creation of Commission • In 1995, the Florida Legislature created the 11 member Florida Commission on Hurricane Loss b Fl id C i i H i L Projection Methodology (see s. 627.0628, F.S.) • Panel of Independent Experts formed to “provide the most actuarially sophisticated guidelines and standards for projection of hurricane losses d d f j i f h i l possible.” 3

Composition of the Commission Composition of the Commission • Three actuaries: – OIR (appointed by Director of OIR) ( pp y ) – Insurance Industry (appointed by CFO) – Actuary Member of the FHCF Advisory Council • Experts from the State University System (appointed by the CFO): E t f th St t U i it S t ( i t d b th CFO) – Insurance Finance (Actuarial Science) – Statistics (Insurance) ( ) – Computer System Design – Meteorology (Hurricanes) • Insurance Consumer Advocate C • Executive Director of Citizens • Senior FHCF Officer • Director, Division of Emergency Management 4

Names of Commission Members & Professional Team Names of Commission Members & Professional Team Names of Commission Members & Professional Team Names of Commission Members & Professional Team Members Over the Last 12 Years Members Over the Last 12 Years Members Over the Last 12 Years Members Over the Last 12 Years (current members bolded) (current members bolded) – 55 Experts Involved (current members bolded) (current members bolded) – 55 Experts Involved 55 Experts Involved 55 Experts Involved Insurance Executive Director, Director, Consumer Advocate Senior FHCF Officer Citizens Emergency Management FHCF Actuary OIR Actuary Terry Butler Jack Nicholson, PhD Scott Wallace Craig Fugate Larry Johnson, FCAS Howard Eagelfeld, FCAS Bob Milligan Bob Ricker Joe Myers Alice Gannon, FCAS Sri Ramanujam, FCAS 2 Steve Burgess Jay Newman Myron Dye, FCAS Kay Cleary, FCAS 1 Lauri Goldman Ken Ritzenthaler, ACAS 3 3 Elsie Crowell 4 5 Insurance Computer System Industry Actuary Finance Expert Statistics Expert Design Expert Meteorology Expert Total Kristen Bessette, FCAS Randy Dumm, PhD Sneh Gulati, PhD Jai Navlakha, PhD Hugh Willoughby, PhD Commission Steve Ludwig, FCAS David Nye, PhD Tim Lynch, PhD David Coursey, PhD Jim O'Brien, PhD Members - 36 Mark Homan, FCAS Carol Taylor West, PhD Shahid Hamid, PhD Kevin Kloesel, PhD 2 Dan Powell, FCAS Naphtali David Rishe, PhD Peter Ray, PhD 3 Charles Hughes, PhD 4 4 5 Actuary Statistician Computer Scientist Meteorologist Engineer Marty Simons, ACAS Mark Johnson, PhD Paul Fishwick, PhD Jenni Evans, PhD Fred Stolaski, PE Chuck Watson Mark Brannon, FCAS Ron Iman, PhD Dick Nance, PhD Tom Schroeder, PhD Masoud Zadeh, PhD, PE (backup) (backup) (backup) (backup) (backup) Julie Serakos David Cox, FCAS Ben Fitzpatrick, PhD Peter Ray, PhD Nur Yazdani, PhD, PE 2 2 Steve Lyons, PhD Nariman Balsara, PE 3 3 John Pepper, PE 4 Total Professional 5 5 T Team Members - 19 M b 19 5

Summary of Commission Activities Summary of Commission Activities Summary of Commission Activities Summary of Commission Activities • 128 meetings over 12 year period • Involvement of 55 different experts (36 Commission members & 19 Professional Team members) • 52 on-site reviews/audits • Annual Report of Activities published by November 1 • Rigorous public disclosure, on-site audits, and evaluation process (12 years of documentation) • Reviewed eight (8) different models over 12 years • Five (5) models acceptable under the current Standards • Total Cost to Date: over $4 million 6

The Professional Team The Professional Team Inputs Statistics Expert Evaluation Requires: Meteorology Engineering Statistician Meteorologist Structural Engineer Actuarial Actuary Computer Scientist Outputs 55 On-Site Reviews to date Computer Programming Hurricane Computer Models Hurricane Computer Models 7

8 The Acceptability Process The Acceptability Process Revising & Developing Standards Reviewing Models Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun November 1 February 28 y 8 Modelers have 4 months to revise models

Principles Principles Principles Principles (Examples ) (Examples ) (Examples ) (Examples ) (Examples*) (Examples*) (Examples*) (Examples*) • All models or methods shall be theoretically sound • All models or methods shall be theoretically sound. • Models or methods shall not be biased to overstate or Models or methods shall not be biased to overstate or understate results. • The output of models or methods shall be reasonable and the modeler shall demonstrate its reasonableness. *See page 15 of the Report of Activities for the 20 Principles adopted by the Commission. 9

Requirements Requirements Requirements Requirements q General General Meteorological Meteorological Vulnerability Vulnerability Actuarial Actuarial Statistical Statistical Computer Computer Standards 5 6 2 10 6 7 36 36 (8 subparts) (12 subparts) (9 subparts) (29 subparts) (7 subparts) (23 subparts) (88 subparts) Disclosures 28 33 11 38 27 7 144 144 Forms 7 3 3 8 5 0 26 26 On-Site Audit Requirements 13 28 10 33 29 29 142 142 10 10

Overview of Hurricane Loss Models Overview of Hurricane Loss Models • Input Data Bases • Wind Models • Surface Friction and Topography Adjustments Surface Friction and Topography Adjustments • Damage Functions • Frequency of Occurrence of Events • Supporting Decisions. For example: What constitutes an event? Spatial aggregation of numerical results Spatial aggregation of numerical results 11 11

Traditional Loss Models Traditional Loss Models Land Cover Exposure Historical Historical Topography Topography Data Storm Data Data Storm Wind Friction Damage Actuarial Set Model Model Function Module Frequency Model Loss Costs Historical data can be used directly, statistically smoothed, or otherwise analyzed to create a data base of storm characteristics used to create the storm set for storm characteristics used to create the storm set for simulations. 12 12

Research/Comparison Approach Research/Comparison Approach • Nine wind fields • F Four surface friction methods f f i ti th d • Nine damage (vulnerability) functions Nine damage (vulnerability) functions • Three frequency methods • 9 x 4 x 9 x 3 = 972 models Other options include changing historical storm data bases, exposures, and other storm assumptions. Result p p is thousands of possible outcomes. 13 13

Input Data Bases Input Data Bases • Digital Elevation Model (topography) Not all models use topography Ridge and valley effects important in upland areas Ridge and valley effects important in upland areas • Land Cover/Land Use Friction effects to adjust wind impacts on structures at surface Friction effects to adjust wind impacts on structures at surface • Historical Storm Track and Intensity Data Req ired to sim late indi id al storms for comparison Required to simulate individual storms for comparison with observed losses. Used as a basis for the determination of frequency of occurrence and other storm characteristics • Exposure Data Set Location, characteristics, and value of properties at risk 14 14

15 15 M O NRO E Range of Results from Public Domain Models Range of Results from Public Domain Models CO LLIER M IAM I-DADE E LEE PALM BEACH H 972 Models – Range of results: maximum, median, and minimum G ULF M ARTIN BRO W ARD BAY CHARLO TTE E SAINT LUCIE E FRANKLIN SARASO TA INDIAN RIVE ER HENDRY O KALO O SA CALHO UN M ANATEE W ALTO N PINELLAS ESCAM BIA G LADES LIBERTY SANTA RO SA A DESO TO O KEECHO BE EE max PASCO W ASHING TO O N HERNANDO O BREVARD CITRUS Min O SCEO LA HIG HLANDS S HARDEE HILLSBO RO O U UG H HO LM ES Median PO LK O RANG E SAINT JO HN NS G ADSDEN FLAG LER SUM TER NASSAU JACKSO N LEO N W AKULLA LAKE SEM INO LE DUVAL LEVY VO LUSIA PUTNAM M ARIO N DIXIE CLAY TAYLO R UNIO N ALACHUA BAKER JEFFERSO N N G ILCHRIST BRADFO RD LAFAYETTE CO LUM BIA M ADISO N HAM ILTO N SUW ANNEE E 16 16 14 12 10 8 6 4 2 0

Why Are Models Different? Why Are Models Different? y Examined many additional aspects of why models differ besides the obvious one of different equations: b id th b i f diff t ti • Meteorological input variables • Historical data • Land cover • Exposure data bases and aggregation 16 16

Impact of Meteorological Assumptions Impact of Meteorological Assumptions 17 17