Thursday, September 29, 2011

Goldilocks and the Three Risk Estimates

A few days ago, the Florida Office of Insurance Regulation issued their "Decision on Citizens Property Insurance Corporation's Rate Filing".
Homeowners # 11-12402 & 12403
Original Rate Requested 21.2%
Board Proposal
Rate Established 6.2%

Dwelling Fire #11-12716 & 12717
Original Rate Requested 18.1%
Board Proposal
Rate Established 8.6%

[Sinkhole Portion]
Homeowners # 11-12403
Original Rate Requested 447.0%
Board Proposal 41.8%
Rate Established 32.8%

Dwelling Fire #11-12716
Original Rate Requested 631.5%
Board Proposal N/A
Rate Established 96.5%
447% (sinkhole rate request) is an average. In reality the request ranged from 0-2,226.1%.

That's right.

The risk of sinkhole damage is perceived by Citizens to have increased by over 2000% in at least one county (Orange County).

So, what is the right risk?
  • This assessment of risk offered by FLOIR has the backing of the CFO Jeff Atwater (R) who suggests that the original rate request was "too aggressive."
  • Regulator Kevin McCarty states, "Although more credible data and study is required, these established rates will start Citizens on the path of having a sound rate for their sinkhole risk."
  • Governor Scott (R) stated "My goal is to make sure that Citizens is financially viable."

If the risk is unknown then how is progress made towards Citizens' viability or soundness, unless of course, it need not matter and rates should just go up. Just up. Interestingly, McCarty's requisite that more information is needed (interpreted as 'science' on my end) will necessitate that rates go up for two reasons: 1) Science creates uncertainty (ie risk) and 2)If increasing rates is the path to a "sound rate" then science that professes otherwise would be wrong... indeed, McCarty would be wrong.

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