SUB212FNZ.doc - Validation of the Florida Public Hurricane Loss Projection Model J-P Pinelli a C.S Subramanian a K Gurley b S Hamid c a Florida Tech 150

SUB212FNZ.doc - Validation of the Florida Public Hurricane...

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Validation of the Florida Public Hurricane Loss Projection Model J.-P. Pinelli a , C.S. Subramanian a , K. Gurley b , S. Hamid c a Florida Tech, 150 W. University Blvd, Melbourne, Florida, USA b University of Florida, Gainesville, Florida, USA c Florida International University,, Miami, Florida, USA ABSTRACT: The Florida Public Hurricane Loss Projection Model is one of the first public models entirely accessible for scrutiny to the scientific community. The model incorporates the latest state of the art techniques in hurricane prediction, and vulnerability modeling based on en- gineering criteria. Although the model was developed for Florida, it is applicable to any hurri- cane prone region. The methodology could also be extended to other types of hazard. The 2004 intense hurricane season produced substantial losses in Florida, and provided the opportunity to validate and calibrate the loss model against actual claim data. The paper presents the predicted losses for several insurance portfolios for scenarios corresponding to hurricanes Charley and Frances, as well as for hurricane Andrew. The results are validated against the actual claim data provided by the insurance companies for the same hurricanes. Conclusions are drawn regarding the validity of the model components and the best ways to improve them. Some of the conclu- sions can be extrapolated to the modeling of other natural or man-made risks. KEYWORDS: hurricane; damage, validation, calibration, risk model. INRODUCTION In the United States, the 2004 hurricane season resulted in insured losses of over $20.5 billion, of which Florida accounted for 85%. In 2005, hurricanes Katrina, Rita, and Wilma produced losses in excess of $30 billion along the Gulf Coast and in Florida. The need to predict hurri- cane-induced losses for $1.5 trillion worth of existing structures exposed to such potential hurri- cane devastation in the state of Florida has prompted the Florida Department of Financial Ser- vices (FDFS) to charge a group of researchers to develop the Florida Public Hurricane Loss Pro- jection Model (FPHLPM). The project called for the efforts of several functional teams: A meteorological team devel- oped a hurricane wind model (Powell et al. 2005); an engineering team developed the building vulnerability and exposure model (Pinelli et al. 2005b); an actuarial team translated the damage into insurance loss and a computer team integrated the different components into a user-friendly and stable computer platform. Although several good commercial models already exist in the market, this is the first public model specifically designed to predict residential losses for the insurance industry which is en- tirely accessible for scrutiny to the scientific community and the public. The intense 2004 and 2005 hurricane seasons provided a wealth of data that has led to a reevaluation of many predic- tion models, which are sometimes questioned by the public (Simpson 2006). The aim of the FPHLPM is to provide transparent unbiased prediction of the existing risk that will strengthen the consensus between the industry, government regulators, and the public for the definition of reasonable insurance policy premiums.
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