AIR’s Latest Release of CLASIC/2 Allows Insurers to Better Prep for Hurricane Season

The latest release of AIR Worldwide Corporation’s (AIR) detailed catastrophe risk management system, CLASIC/2, has been enhanced to help insurers better prepare for the risk of multiple hurricanes in a single season.

CLASIC/2 now allows insurers to account for an annual hurricane deductible and for the upward pressure on repair costs – and therefore on insurance losses – that can be exacerbated by the occurrence of multiple events.

“The 2004 hurricane season highlighted issues that need to be more effectively addressed by insurers managing catastrophe risk,” said Uday Virkud, senior vice president at AIR. “These include the need to manage aggregate losses from multiple events in a single season, the cumulative impact of those events on repair costs, and a new regulatory environment. We have been working closely with our clients to respond quickly to meet the industry’s changing needs.”

After Floridians bore the brunt last year of four hurricanes in a span of six weeks, the Florida legislature enacted a new law requiring insurers to offer policyholders an annual hurricane deductible. The latest release of CLASIC/2 provides insurers with the option to estimate losses based either on an annual or per occurrence deductible.

Surging demand for repairs following Florida’s 2004 hurricanes drove costs up, adding significantly to insurers’ losses. In an analysis of detailed claims data, AIR found that the effect was magnified by the fact that the storms were clustered both in time and location. The new release of CLASIC/2 enables clients to apply a demand surge factor to their loss estimates on an aggregate basis to account for the increase in costs resulting from multiple storms in close proximity.

The latest release of CLASIC/2 contains AIR’s updated hurricane model, which reflects hurricane activity through 2004. It also incorporates AIR’s updated U.S. earthquake model, which includes recently identified faults in California and the Pacific Northwest.

Further updates include the incorporation of recently published empirical studies on the rate at which ground motion diminishes with distance and revisions to the model’s distribution of background seismicity.

CLASIC/2 also includes AIR’s workers’ compensation model for both earthquake and terrorism, which includes updated claims costs and benefit levels.