Hurricane Class Plans

1
Hurricane Class Plans

• Michael A. Walters FCAS, MAAA
• CAS Ratemaking Seminar
• March 11-12, 1999

2
Topics of Discussion

• Why a separate class plan
• How to create from a single model
• How to use multiple sources
• Deciding cost/effective class variables
• Standards and considerations
• Selecting a base class
• Adjusting to new base class

3
Why a separate class plan?

• Hurricane doesnt vary with traditional
  homeowners factors
• Not by protection class
• Not by policy form
• Not the same way by construction,
  
  amount of insurance, deductible

4
How to use a single model

• For base class, use single house in each zip code
  at base coverage
• For each class, run model for single house by zip
  code
• Track relationship to base by zip
• Use mapping software to group similar zip code
  relationships
• Publish relativities by zone or statewide

5
How to use multiple sources

• Decide what variables to include
• Survey sources for relativities
• Use several zip codes around state
• Delphi technique for outliers
• Apply actuarial judgment
• Peer review by engineering experts

6
Decide rating variables

• Roof - shape, covering, waterproof sheathing,
  pitch, overhang
• Connections - straps, nailing (size,spacing)
• Windows and Doors - shuttering, garage door size
  bracing, glazing
• House Features - stories, porches, construction
• Environment - terrain, debris exposure

7
Standards

• Homogeneous
• No clear subsets of large different loss
  potential
• Reasonably related to loss hazard
• Well Defined
• Exhaustive and mutually exclusive
• No ambiguity in placement
• No manipulation by insureds
• Practical
• Reasonable cost to administer
• Able to be tested by actual loss data

8
Considerations

• Prioritize items that insureds can change
• Use results from mitigation programs
• Combine categories to control number of classes
• Measure interaction among variables
• May need on-site survey by independent
  professionals

9
Selecting/Adjusting Base Class

• Base Class
• Generally the prevailing condition
• Discounts for other classes
• Sample gable roof, no shutters, no roof clips
• Adjust Loss Costs to New Base
• Estimate distributions of classes
• Use class relativities to calculate off-balance

10
Base Class Assumptions (italics)

• Roof
• Shape - gable unbraced, gable braced, hip, flat
• Cover - Shingle, tile, slate, metal, poured
  concrete
• Waterproof sheathing underlayment - No, yes
• Pitch - 30 degrees
• Overhang - 36 inches
• Connections
• Hurricane Clips - No, yes at roof, at foundation
• Sheathing Attachment - 6d nails, 8d nails

11
Base Class Assumptions (italics)

• Windows and Doors
• Shuttering - None, ordinary,
  
  hurricane resistant
  (debris impact)
• Glass patio doors - Yes, no
• Garage doors - single-wide, double-wide braced,
  unbraced
• Laminated glass - No, yes

12
Base Class Assumptions (italics)

• House Features
• Number of stories - one, one
• Porches/canopies/carports - Yes, no
• Construction - frame, masonry reinforced?
• Year Built/Code Enforcement - before 1995/not
  enforced, other
• Environment
• Suburban light tree cover, dense
• Other - waterfront, urban, rural