Hurricane Mitigation Plans Michael A. Walters FCAS, MAAA CAS Catastrophe Seminar October 16, 2000

2 Topics of Discussion Creating a mitigation/class plan in Florida Could have used a single model Did use multiple sources Deciding cost/effective class variables Standards and considerations Selecting a base class Adjusting to new base class

3 Creating a mitigation/class plan Florida hurricane is already separate In Windpool (FWUA) wind coverage Split out Other Wind Goal: mitigation plan plus rate level Identify true costs Incentive for insureds to mitigate home Transition plan: stagger premium increases Payback in a few years of premium savings

4 Could have used a single model For base class, use single house in each zip code at base coverage For each class, run model for single house by zip code Track relationship to base by zip Use mapping software to group similar zip code relationships Publish relativities by zone or statewide

5 Florida: did use multiple sources Decide what variables to include Survey sources for relativities Use several zip codes around state Delphi technique for outliers Apply actuarial judgment Peer review by engineering experts

6 Decide rating variables Roof - shape, covering, waterproof sheathing, pitch, overhang Connections - straps, nailing (size,spacing) Windows and Doors - shuttering, garage door size & bracing, glazing House Features - stories, porches, construction Environment - terrain, debris exposure

7 Standards Homogeneous –No clear subsets of large different loss potential –Reasonably related to loss hazard Well Defined –Exhaustive and mutually exclusive –No ambiguity in placement –No manipulation by insureds Practical –Reasonable cost to administer –Able to be tested by actual loss data

8 Considerations Prioritize items that insureds can change Use results from mitigation programs Combine categories to control number of classes Measure interaction among variables May need on-site survey by independent professionals

9 Selecting/Adjusting Base Class Base Class –Generally the prevailing condition –Discounts for other classes –Sample: gable roof, no shutters, no roof clips Adjust Loss Costs to New Base –Estimate distributions of classes –Use class relativities to calculate off-balance

10 Base Class Assumptions (italics) Roof –Shape - gable unbraced, gable braced, hip, flat –Cover - Shingle, tile, slate, metal, poured concrete –Waterproof sheathing underlayment - No, yes –Pitch - 30 degrees –Overhang - 36 inches Connections –Hurricane Clips - No, yes: at roof, at foundation –Sheathing Attachment - 6d nails, 8d nails

11 Base Class Assumptions (italics) Windows and Doors –Shuttering - None, ordinary, hurricane resistant (debris impact) –Glass patio doors - Yes, no –Garage doors - single-wide, double-wide; braced, unbraced –Laminated glass - No, yes

12 Base Class Assumptions (italics) House Features –Number of stories - one, >one –Porches/canopies/carports - Yes, no –Construction - frame, masonry: reinforced? –Year Built/Code Enforcement - before 1995/not enforced, other Environment –Suburban light tree cover, dense –Other - waterfront, urban, rural