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An Empirical Model for Predicting the Decay of Tropical Cyclone Wind Speed After Landfall Over the Indian Region

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Abstract:

<sc>Abstract</sc>

The fundamental shift in rating methodology from historical loss costs to catastrophe modeling for windstorm coverage calls into question the accuracy of rates developed using rating territories. Using premiums and modeled average annual loss (AAL) estimates from Citizens Property Insurance Corporation (Citizens) in Florida, this article analyzes the use of distance to coast (DtC) as a rating variable in providing coverage for the windstorm peril in homeowners insurance. Catastrophe models used to generate AAL costs do not rely on the same application of the law of large numbers as using historical loss costs and thus allows for more granular pricing of the windstorm peril. The results show that DtC, a rating variable that is property specific, more closely aligns premiums and AALs than territorial rating, and allows more granular pricing of the windstorm peril. More granular risk based pricing provides better incentives for homeowners regarding location and mitigation choices and may help reduce aggregate exposure to windstorm damages in the long run.

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1540-6296.2011.01204.x

Affiliations: . The authors wish to thank the Florida Catastrophic Storm Risk Management Center for financial support of this project. This article was subject to double-blind peer review.

Publication date: September 1, 2011

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