This Is The Kind Of Crud I've Come To Expect From The Insurance Industry
If you watch the international news and read a daily newspaper, you know of members of Congress who are now saying that they voted to support the war in Iraq because they were misled by faulty intelligence from the administration. The result? Thousands are dead, there are no weapons of mass destruction and the current war effort is costing the American taxpayers $1-million every 5 minutes according to a report I heard recently on TV.
Okay, blame it on bad information.
Well, property insurance companies may also be reacting to bad information which is causing insurance rates to be unnecessarily high.
According to information originally published by the Tampa Tribune, there is a company called Research Management Solutions (RMS) of Newark, California. This company developed and released a new computer model that projects a 40 percent increase in losses from hurricanes in Florida, the Gulf Coast and throughout the Southeast. This model has apparently contributed to significant increases in property insurance rates in coastal areas.
The thing is, RMS did not put the computer model out for peer review by outside experts before it was released to the insurance industry. The normal routine in peer review is to submit the material to various scientific journals and let editors and other experts review the material and raise questions about it. After that process has been completed, the material may then be published, but even then other scientists can have a shot at reviewing the published models.
Not submitting the model to peer review is just not how it is done. It is unethical. It's like an untested model that could be wrong and nobody really knows it's wrong. Kinda like the theory of weapons of mass destruction -- expect what is being destroyed here is your checkbook.
The RMS model is not yet approved for use by insurers in Florida, but it is being used by reinsurance companies that provide financial backing to Florida's insurance companies. Since they are using this data at the reinsurance companies, this is one of the items that is forcing Florida's insurance rates to go up and up and up. Remember, the cost of reinsurance is from 30 to 60 percent of permiums, according to the state.
In their defense, RMS is saying that they invited a group of respected scientists to review the model. This is called "expert elicitation". Here's what happened. They got a panel of four scientists together, invited them to meet in Bermuda and discussed the model. I'm no expert on peer review and I'm certainly not an ethicist, but I don't think that was much of a peer review session. Only four guys. An all-expense paid trip to Bermuda. How objective was the review session?
At any rate, this model is forming the basis for some very critical decisions about reinsurance rates. Ultimately, you're paying for those decisions through increased premiums which may -- and I stress the word may -- be being made based on a new and faulty hurricane model.
I wonder if anybody in Tallahassee is aware of this little matter as they sit down in special session?
For more information on real estate in Pinellas County, please visit my website at www.TheStPeteRealEstateSite.com.
Okay, blame it on bad information.
Well, property insurance companies may also be reacting to bad information which is causing insurance rates to be unnecessarily high.
According to information originally published by the Tampa Tribune, there is a company called Research Management Solutions (RMS) of Newark, California. This company developed and released a new computer model that projects a 40 percent increase in losses from hurricanes in Florida, the Gulf Coast and throughout the Southeast. This model has apparently contributed to significant increases in property insurance rates in coastal areas.
The thing is, RMS did not put the computer model out for peer review by outside experts before it was released to the insurance industry. The normal routine in peer review is to submit the material to various scientific journals and let editors and other experts review the material and raise questions about it. After that process has been completed, the material may then be published, but even then other scientists can have a shot at reviewing the published models.
Not submitting the model to peer review is just not how it is done. It is unethical. It's like an untested model that could be wrong and nobody really knows it's wrong. Kinda like the theory of weapons of mass destruction -- expect what is being destroyed here is your checkbook.
The RMS model is not yet approved for use by insurers in Florida, but it is being used by reinsurance companies that provide financial backing to Florida's insurance companies. Since they are using this data at the reinsurance companies, this is one of the items that is forcing Florida's insurance rates to go up and up and up. Remember, the cost of reinsurance is from 30 to 60 percent of permiums, according to the state.
In their defense, RMS is saying that they invited a group of respected scientists to review the model. This is called "expert elicitation". Here's what happened. They got a panel of four scientists together, invited them to meet in Bermuda and discussed the model. I'm no expert on peer review and I'm certainly not an ethicist, but I don't think that was much of a peer review session. Only four guys. An all-expense paid trip to Bermuda. How objective was the review session?
At any rate, this model is forming the basis for some very critical decisions about reinsurance rates. Ultimately, you're paying for those decisions through increased premiums which may -- and I stress the word may -- be being made based on a new and faulty hurricane model.
I wonder if anybody in Tallahassee is aware of this little matter as they sit down in special session?
For more information on real estate in Pinellas County, please visit my website at www.TheStPeteRealEstateSite.com.
-30-
posted by Terry Ward at 3:35 AM
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