While Florida insurers have long used catastrophe models to assess portfolio-level catastrophe risk, leading carriers assess catastrophe risk before the policy is underwritten. Incorporating catastrophe modeling into the underwriting process is easier than most assume.

Technology has advanced to the point where an individual risk can be analyzed as part of an automated underwriting process. Furthermore, insurers can minimize the impact on the current underwriting workflow by capturing the data required for sound catastrophe risk management as part of the replacement-cost estimation process.

Many policies today are still underwritten using hazard-based assessments of catastrophe risk. These approaches, including rating territories and distance-to-coast, are insufficient because location is the only aspect of the property's risk profile considered. The use of these metrics can be counterproductive. A distance-to-coast analysis may suggest underwriting a less attractive risk three miles from the coast, while rejecting a better risk 500 feet from the coast.

A catastrophe risk assessment for an individual property requires more than the location. Catastrophe models evaluate other key variables—such as property-specific building characteristics, replacement value and policy terms—to determine the probability of various levels of loss.

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