Recent "near term" hurricane prediction models based on five-year forecasts are being skewered by consumer groups urging state regulators to reject them as a basis for hiking coastal property insurance rates.

The Consumer Federation of America and the Center for Economic Justice have called upon the National Association of Insurance Commissioners to reject the new modeling methods established by Risk Management Solutions and "immediately increase regulation of non-insurer organizations whose work has a significant impact on insurance rates and availability."

The computer catastrophe models are developed for insurers by organizations like Risk Management Solutions, Applied Insurance Research and EqeCat to estimate future damage caused by weather related events and are then used to figure homeowners' insurance rates.

The national consumer groups have called on state insurance regulators and the NAIC – twice in the last 12 months – to reject what they say are "severely flawed hurricane projections" used by insurers to "sharply" increase rates on property insurance policies in states along the Atlantic and Gulf coasts.

"We informed the NAIC a year ago that modeling changes made by RMS would lead to unjustified rate increases for consumers, but the NAIC and every state with the exception of Florida and Georgia failed to act to protect consumers," said J. Robert Hunter, CFA's Director of Insurance. "Since that time, rates have risen sharply in coastal areas and impartial scientists have strongly criticized the use of 'near term' projections by RMS and other firms that have increased estimated loss costs by up to 90 percent in some areas. Even one of the firms that markets catastrophic risk models, AIR Worldwide Corp. has criticized the practice."

Birny Birnbaum, executive director of CEJ, maintained that the models are not as scientific as their creators claim.

"It is a sham for RMS to claim that its catastrophe models are scientifically sound when they make an ad hoc adjustment at the end of the process that doubles loss projections," he argued.

He, too, urged state insurance regulators to take up the issue.

"The NAIC claims the primary job of state insurance regulators is consumer protection, but it has done nothing to protect consumers from massive and unjustified rate hikes. It is a sad commentary on state insurance regulation that consumer groups have to repeatedly demand that regulators take action to stop these dramatic and unfair increases," Birnbaum added.

RMS did not respond to a request for comment.

Ragan Ingram, assistant commissioner for the Alabama Department of Insurance, speaking on behalf of Insurance Commissioner Walter Bell, who is also president of the NAIC, declined comment at this time.

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