New FIU-led coastal and inland flood loss model certified by the state

Nearly three months after hurricanes Helene and Milton delivered record flood and storm surge levels to cities in Florida, the state has accepted a public loss model that FIU helped design to assess financial risks faced by insurance companies and set the premiums paid by their customers.

A “public loss model” refers to a computer model developed and made accessible to the public that estimates potential financial losses from a natural disaster.

The Florida Public Flood Loss Model has been certified by the Florida Commission on Hurricane Loss Projection Methodology, meaning the model has met rigorous standards and is considered reliable. It analyzes both coastal and inland flooding. It was developed by eight universities, under FIU’s direction, and includes collaboration from the National Oceanic and Atmospheric Administration’s hurricane research team and a private consulting firm.

“Use of the flood loss model is going to increase in the future as more private insurance companies come into the market,” said Shahid Hamid, FIU Business finance professor and director of the Laboratory for Insurance, Financial and Economic Research, part of FIU’s Extreme Events Institute. “They will need to use the model to justify their rates.”

Most flood insurance coverage in the United States is provided by the National Flood Insurance Program, which is managed by the Federal Emergency Management Agency and delivered to homeowners and renters by a network of more than 50 insurance companies.

The public loss model, Hamid explained, estimates the annual loss average for different types of structures subject to three types of flooding: coastal storm surge, inland flooding from rainfall and inland flooding from overflowing rivers.

“Florida is largest market in terms of flood policy and premiums, representing roughly one-third of those written,” Hamid said.

Hurricanes Helene and Milton have resulted in more than 80,000 flood claims, including some 6,183 claims with private flood insurance companies, according to FEMA and other sources.

“We’re at a point where we anticipate that in the coming year the model will be used for rate making and regulatory purposes and it will continue to grow,” Hamid said. “The use of such a model will become more frequent and important over time for pricing premiums as more private companies enter the market and a greater proportion of homeowners will go to include flood insurance.”

“Worldwide severe convective storms caused $64 billion in damages in 2023,” he said, noting that it has led to increasing concern for the insurance industry as well as to those paying rising premiums.