FSU RMI faculty research shapes public policy

Hurricanes pummeling the coast. Rushing waters flooding property inland. Such natural disasters often turn Florida into ground zero for risk management, including changes in insurance coverage and costs. A new undertaking by Florida State University’s Risk Management and Insurance Center – in partnership with the Florida Office of Insurance Regulation (OIR) and the Florida Surplus Lines Service Office (FSLSO) – aims to provide a rare, comprehensive look at all sides of the state’s insurance market.

“The university’s RMI program and faculty are well-known and admired by the Office of Insurance Regulation for their expertise and interest in Florida’s residential market,” said Michael Yaworsky, Florida Insurance Commissioner. “By giving the program complete access to our data, they are able to help the office study trends in the residential market and assist in identifying issues before they could potentially become a problem.”

The massive data analysis project represents the latest example of policymakers turning to the FSU College of Business and the faculty expertise available through its RMI center and the Dr. William T. Hold/The Alliance’s Program in Risk Management and Insurance. The breadth of FSU RMI faculty knowledge – honed from decades of research into reducing financial risk and stimulating economic recovery – can inform the best responses for the world’s most devastating challenges.

“This latest state-university partnership drives home the practical benefits of research,” said Michael Hartline, dean of the FSU College of Business. “As our faculty members generate new knowledge, their findings often reveal links between causes and effects, delivering better data for policymakers tasked with developing solutions that best benefit the greater good.”

This ongoing scholarship led the FSU RMI faculty to achieve the No. 4 ranking nationally, No. 6 globally, for its high volume of research published in leading journals, according to the University of Nebraska-Lincoln Global Research Rankings of Actuarial Science and Risk Management and Insurance. Having one of the oldest and largest RMI programs in the nation, FSU consistently secures a top spot among the nation’s universities for its research and high-ranking RMI degree programs, succeeding in the largest catastrophic risk market in the U.S. and the seventh-largest insurance market in the world.

Mark Shealy, director of FSLSO, noted that FSU RMI’s latest project with the state of Florida, dubbed the Market Health Study Analysis, marks the first complete market view in several years and involves data from several sources.

“This creates a unique and important opportunity to evaluate the entire market, enabling us to return very comprehensive insights over time,” Shealy said. He expects the resulting analysis will disclose new information related to “catastrophic events, scarcity of reinsurance, amount of foreign and domestic carrier capacity, functioning tort environment, development of construction code impacts and building cost inflation.”

Charles Nyce, chair of FSU’s Department of Risk Management/Insurance, Real Estate and Legal Studies and the Dr. William T. Hold Professor of Risk Management and Insurance, and Gabriel Carrillo, executive director of FSU RMI center, said this data dive and analysis build upon the department’s long history of relevant risk management and insurance research, especially related to mitigating storm damage and cost.

Nyce said the RMI program and center have been intentional about securing projects that allow faculty members to contribute their expertise toward public efforts to weather catastrophic events and build community resilience.

“We are part of an interdisciplinary approach to finding solutions,” Nyce said.

The following list summarizes recent studies by FSU RMI scholars that provide data and analysis for those shaping public policy:

• Homeowners Insurance and Housing Prices: Exploring the impact of insurance cost on Florida’s housing market.
  Among the key findings: A 10% increase in homeowners insurance prices decreases housing prices by at least 1.4%, more so for mortgage-financed buyers and homeowners than for investors. It is not the disasters but the ensuing insurance cancellations that drive reduced housing prices.
• Market Health Study Analysis: Partnering with the Florida Office of Insurance Regulation and Florida Surplus Lines Service Office to examine Florida’s entire insurance market. In process.
• National Flood Insurance Program (NFIP) Community Rating System Study: Partnering with the Florida Office of Insurance Regulation to evaluate the benefits and long-term effects for communities relying on the Community Rating System (CRS) for discounted insurance rates.
  Among the key findings: Florida communities that had substantial cumulative improvement regulations did not see higher take-up rates of flood insurance. There may be more meaningful ways for communities to increase flood insurance discounts that are easier to implement and understand. Read more.
• Public-Private Partnership in Catastrophe Risk Management: Partnering with FSU’s LeRoy Collins Institute to research how to reduce the cost of catastrophic risk in Florida.
  Among the key findings: Better financing of meaningful mitigation is necessary to slow the growing risk profile in Florida. Government intervention in insurance markets needs to be more carefully aligned with private industry efforts to reduce market inefficiencies and preserve location incentives.
• Regulatory Capital and Catastrophe Risk: Studying property insurers’ response to rule changes in required capital holdings.
  Among the key findings: Home insurance premiums increase in zip codes most affected by regulatory capital reform, specifically reform requiring insurers to hold additional capital when underwriting catastrophic risk.

FSU scholars co-leading one or more of listed studies: Patricia Born, the Payne H. and Charlotte Hodges Midyette Eminent Scholar in Risk Management and Insurance; Gabriel Carrillo, executive director of the FSU’s RMI Center; Evan Eastman, Independent Life and Accident Insurance Associate Professor of RMI; Brad Karl, State Farm Associate Professor of RMI and the center’s research director; Kyeonghee Kim, assistant professor of RMI; Charles Nyce, chair of FSU’s Department of Risk Management/Insurance, Real Estate and Legal Studies and the Dr. William T. Hold Professor of RMI; and Tingyu Zhou, Dean and Kathy Gatzlaff Associate Professor of Real Estate.

Several research studies have or will be presented at the following academic conferences: Allied Social Sciences Association (ASSA); American Real Estate Society (ARES); American Risk and Insurance Association (ARIA); the Center for the Economic Analysis of Risk-Munich Risk and Insurance Center (CEAR-MRIC); the Eastern Finance Association; the Risk Theory Society; Southern Risk and Insurance Association (SRIA); and the Southern Finance Association.

– Melanie Yeager