Sarasota Herald-Tribune reporter Paige St. John is questioning the clothing choices of cat modeling emperor RMS in a well-sourced series that makes a lot of good points if you can get past all of the insurance bashing. However, the case she proves is not the one I think she wants to make.
She accuses the leading cat modeling firm, RMS, of basically gaming its own black box, the computer model that projects losses from major storms, most famously hurricanes. Insurers use models like those of RMS to project how much it should cost to insure their portfolio of risks. Since RMS is the No. 1 cat modeling firm, any bias in its models will skew homeowners’ rates in cat-prone states like Florida.
She also notes that the models suffer from GIGO syndrome. The data fed into them can be notoriously inaccurate, so the estimates they spit out could be unreliable. Most famously, the Mississippi casinos washed away by Hurricane Katrina were basically floating barges, but were geocoded as traditional anchored building. When Katrina struck, they tossed about like mobile homes, creating losses far greater than any model could have anticipated.
She also accuses the insurers and reinsurers of playing along with the cat modeling game, as it conveniently led to higher rates.
The reporter’s crusading seems to conclude that the system was rigged to overcharge Floridians. She is reluctant to say so, since the facts don’t inexorably lead there. Continue reading