Aon capitalises on new era of US flood insurance with Florida Flood v3.0 model

Aon has marked the end of an 18-month certification process with the launch of its Florida Flood v3.0 model at a time of great opportunity in the US flood insurance space. Sustainable Insurer talks to Dan Rees, director of US flood model development at Aon, to find out the motivations behind the updated model.

Developed by Impact Forecasting (IF), Aon’s catastrophe model centre of excellence, in conjunction with global flood and climate risk modelling firm Fathom, the Florida flood model was launched earlier this month after receiving approval for statewide usage from the Florida Commission on Hurricane Loss Projection Methodology (FCHLPM).

The model supports clients with rate-making and underwriting by enabling measurement of flood risk using data, analytics and research from both tropical and non-tropical weather systems.

Specific features of the model include high-resolution hazard footprints, annual average loss and probable maximum loss estimates, informed by customised portfolio and geographic attributes.

“We thought it was important to put a model into the market that is peer-reviewed by outside experts and that meets a significant market need,” Rees told Sustainable Insurer.

The importance of flood insurance in Florida is rapidly increasing as the state is continuously threatened by the peril.

According to data from Aon’s Catastrophe Insight, the National Flood Insurance Program (NFIP)’s annual average loss in Florida has exceeded $1.1bn since 2004. In 2022 alone, Hurricane Ian drove NFIP payouts beyond $5.1bn on a price-inflated basis.

“We’re ready to reach out to existing clients to help them consider their rate-making based on the output of the certified model. We will also be reaching out to additional (re)insurers that are using vendor models which didn’t go through the certification process,” Rees said.

The three-step certification process began in May 2023 with IF providing specific details about the model to the FCHLPM professional team, Rees said.

This team, he explained, consists of outside experts including external actuaries, engineers and meteorologists who review the submission.

“People who essentially mirror the roles we have here at IF,” Rees said.

The in-depth review process allowed Aon to demonstrate the firm is being “scientifically sound in the development of our models” and that it’s useful for insurers to have a tool that reflects the overall regulatory and physical environment, allowing them to establish rates that are “neither too high or too low and best serve the consumer”, Rees added.

This process was followed by two thorough separate audits of the model in June and September before Aon secured approval from the FCHLPM at the beginning of November 2024.

Rees noted the importance of transparency within the model’s development and how the commission processes can be easily accessed by stakeholders.

“Anybody can go onto the commission’s website and see details of our submission, details about the model, [details about] the professional team’s report and all of the feedback they gave us,” Rees said.

“They see as much as any of our clients see.”

He added that the update of the Florida flood model had been on the firm’s roadmap but noted that the “big shifts” in the way flood insurance is written in both the state and across the US had accelerated the process.

By 1 January 2027, all personal residential policies issued by Citizens Property Insurance Corporation – Florida’s non-profit insurer of last resort – that include wind coverage will require insureds to have and maintain flood insurance coverage.

This followed legislation passed by the Florida legislature in December 2022.

Rees also cited changes to how the NFIP calculates flood insurance premiums using Risk Rating 2.0, which began in April 2022. Under this method, premiums are calculated to reflect the specific flood risk of an individual property rather than by a general risk category.

In light of such changes, Rees explained the updated model enables clients to “use one of the best in the market models to help quantify their risks and have access to appropriately priced flood insurance”.

“Things are changing rapidly after being set in place for over 50 years. (Re)insurers demand a highly informed view of the market, and we’re here to give them the best answers that we can, and bring the clarity and confidence that can help to drive better decision-making.”