PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

ARCHITECTURE FOR RESIDENTIAL PROPERTY INSURANCE RATEMAKING 491codes for buildings permitted after March 1, 2002. One goalof the FBC is to improve the resistance of new construction towindstorm losses by specifying robust features and constructiontechniques to be used, in accordance with the recommendationsof scientists and engineers. The code is heavily geographydependent,differentiating among many elements based on thewind speed “zone” in which the site is located. In particular,properties located in the “120-mph” (in a 100-year event) andabove wind zones must be built with significant levels of resistanceto wind. Zones are (generally) concentric boundariesdefined by the standards of ASCE 7-98 (see Figure 1). 3The insurance industry strongly supported the FBC, and itsenabling legislation contained a quid pro quo–that insurerswould develop class plans to provide rate differentials for devicesthat demonstrably mitigate windstorm losses, whether suchdevices were included on new construction or extant on, orretrofitted onto, existing structures. The Florida Office of InsuranceRegulation (OIR) commissioned a public domain studyfrom Applied Research Associates, Inc. (ARA) that developed amitigation class plan containing benchmark class factors for variouscombinations of construction features and techniques [2],and an analogous study was conducted by Applied InsuranceResearch, Inc. (AIR) in support of a mitigation class plan filedby Insurance Services Office, Inc. (ISO). The deadline for individualcompanies to make rate filings to implement a mitigationclass plan was February 28, 2003.This mandate is the death knell for indivisible premium ratingplans in Florida. This paper shows that the maldistribution ofloss and capital costs by territory and peril makes such a lackof rating resolution intolerable in the presence of a windstorm3 The exception to this statement is along parts of the Florida Panhandle, where thepolitical influence of home-builder associations caused a “one mile from the coast” rule todelineate areas where 120-mph standards for building materials are to apply. ExaminingFigure 1, the areas excepted comprise most of several west Florida counties.