AIR updates U.S. hurricane model to better estimate business interruption

AIR Worldwide has updated its United States hurricane model to include an enhanced methodology for estimating business interruption (BI) losses.
In the aftermath of the 2004 and 2005 hurricane seasons, which devastated wide swaths of the Gulf Coast and put countless businesses on hold for months or longer, AIR undertook an intensive research and development effort to improve the way catastrophe models estimate business interruption losses, Dr. Jayanta Guin, senior vice president of research and modeling at AIR Worldwide, said in a press release.
The updated model accounts for both building and business characteristics when estimating total BI downtime.
Specifically, the model accounts not only for building damage, but also for building characteristics such as size, contents, and complexity of the building system, and the potential for relocation or for continued operations while repairs are underway. The new model has been validated using detailed claims data from 2004 and 2005 hurricane seasons.
It also calculates indirect losses from sources other than physical damage to the insured building, such as utility service interruption, actions taken by civil authorities, dependent building damage and extended period coverage.
The release also includes enhancements to the models demand surge function and the vulnerability of residential contents and pool enclosures.
Analysis of claims data from recent hurricane seasons has also revealed that contents vulnerability for single family homes has decreased significantly in recent years, AIR says in a release. The updated model accounts for this trend.
The model has also been enhanced to explicitly account for the impact of hurricane winds on pool enclosures, structures thataccording to AIRs latest researchshow a higher vulnerability to wind damage than previously estimated.
Finally, the updated model incorporates research by AIR meteorologists and climate scientists into the link between elevated sea-surface temperatures (SSTs) and U.S. landfall activity.
The impact of demand surgethe increase in costs of materials, services, and labor due to increased demand following a catastrophic eventwas fine-tuned and validated using high-resolution construction cost time series data for the 2004 and 2005 hurricanes taken from XactAnalysis, a reporting tool created by ISO subsidiary Xactware.