Skittish insurance industry skirts hurricane-prone coastal areas;
Proxix Solution’s CATUM tames storm-surge risk
White Paper describes how Proxix’s propriety model uses geocoding to assist insurance companies in underwriting hazardous coastal risks
A just-published White Paper http://www.proxix.com/whitepaper0507.htm prepared by Howard Botts, Ph.D., of Proxix Solutions outlines problems with current underwriting methodologies using distance to coast or distance to coast plus elevation to evaluate property risks in hurricane-prone areas.
Carriers beg off property risks
Homeowners are struggling to find insurance coverage in hurricane-prone coastal areas. Coastal population density is increasing, but several critical factors are causing insurance carriers to abandon Gulf and Northeast coastal property markets. The assumption by reinsures of stronger and more frequent hurricanes from global climate change and troubling court decisions regarding storm-surge damage in the wake of Hurricane Katrina caught insurers off guard, who had always relied on flood exclusions in their policies to limit hurricane damage exposure. Already financially burdened from the 2005 hurricane season, carriers found these trends further inhibited their appetite for risk in those regions.
Rules of thumb underwriting provides insufficient data
Insurance companies often utilize rules of thumb underwriting techniques such as property elevation and/or distance to coast, often 1,000 or 2,500 feet, which may leave them insuring properties that may not be in a flood zone, but are in a storm-surge zone. Conversely, carriers may decline properties that are within a certain amount of feet from the shoreline yet are not in a storm-surge zone. These underwriting decisions either expose insurers to catastrophic loss or decline properties that could be profitably insured.
A National Institute of Standards and Technology (NIST) government study of Hurricane Katrina and Rita damage determined a need for more sophisticated storm-surge prediction. That NIST study found that storm surge was the principal cause of damage in coastal areas from Hurricane Katrina. It also found that flood maps, relied upon when underwriting property coverage, are outdated. Clearly, a more sophisticated underwriting approach is required.
GIS experts at Proxix Solutions developed a state of the art storm-surge model that generates storm-surge inundation polygons for all counties along the Gulf and Atlantic Coasts. Accounting for changes in coastal elevations and barriers to inland surge-water movement, the model produces risk polygons identifying five zones of storm-surge risk, from low to extreme.
Integrating the storm-surge model into Proxix’s automated solution called CATUM (kay? t’m), underwriters input an address or latitude and longitude and receive a detailed risk score for a specific property or location. With CATUM’s highly accurate parcel-level geocoding technology, carriers can outperform rule of thumb rating techniques that affect their profitability.
Storm-surge levels critically important in evaluating risk
Storm-surge levels are now critical in assessing hurricane-prone property coverage. Broussard v. State Farm was a recent case that changed the way insurers view hurricane-prone properties. The first of the so-called “slab suits” to go to trial, State Farm maintained the Broussard’s home was destroyed by storm surge and denied their claim. The judge found in favor of the Broussards because the insurer could not prove which portion of the loss was due to flooding and which portion to wind. The January 17, 2007, court decision was an upset to all carriers writing coastal property and especially the carriers with pending slab suits.
CATUM’s output when run on the Broussard’s address determined that their property is located within a zone with a high risk of loss from storm surge. The property, the analysis found, is located 1,162 feet from the Mississippi Sound. The 1,000-ft rule of thumb would not have prevented an underwriter from insuring this home. Proxix’s analysis could have provided the data needed to clarify the insurer’s level of risk.
Because population density will continue to increase in coastal areas, the coastal insurance marketplace will continue to expand. Using Proxix, underwriters can select properties that generate high premiums but are less susceptible to storm-surge damage, allowing carriers to mine this important market.
Other Proxix modules available
In addition to its coastal risk module, CATUM also evaluates other hazard risks such as wildfires, and damaging winds.
About Proxix Solutions, Inc.
Proxix Solutions develops location intelligence products and enterprise solutions to provide businesses actionable information for decision support to make smarter decisions, understand and mitigate risks, cultivate profitable customer relationships and increase market penetration. Proxix Solutions, a privately held company, was founded in 2003. Proxix’s management team was responsible for developing many geospatial industry firsts, including the first national address geocoder. Proxix is headquartered in Palm Harbor, FL with offices in Boulder, CO and Madison, WI. For more information on Proxix visit www.proxix.com.