Sensitivity Analysis for Computer Model Projections of Hurricane Losses

Ronald L. Iman, Mark E. Johnson and Charles C. Watson

Risk Analysis, 2005, vol. 25, issue 5, 1277-1297

Abstract: Projecting losses associated with hurricanes is a complex and difficult undertaking that is fraught with uncertainties. Hurricane Charley, which struck southwest Florida on August 13, 2004, illustrates the uncertainty of forecasting damages from these storms. Due to shifts in the track and the rapid intensification of the storm, real‐time estimates grew from $2 billion to $3 billion in losses late on the 12th to a peak of $50 billion for a brief time as the storm appeared to be headed for the Tampa Bay area. The storm struck the resort areas of Charlotte Harbor and moved across the densely populated central part of the state, with early poststorm estimates in the $28 to $31 billion range, and final estimates converging at $15 billion as the actual intensity at landfall became apparent. The Florida Commission on Hurricane Loss Projection Methodology (FCHLPM) has a great appreciation for the role of computer models in projecting losses from hurricanes. The FCHLPM contracts with a professional team to perform onsite (confidential) audits of computer models developed by several different companies in the United States that seek to have their models approved for use in insurance rate filings in Florida. The team's members represent the fields of actuarial science, computer science, meteorology, statistics, and wind and structural engineering. An important part of the auditing process requires uncertainty and sensitivity analyses to be performed with the applicant's proprietary model. To influence future such analyses, an uncertainty and sensitivity analysis has been completed for loss projections arising from use of a sophisticated computer model based on the Holland wind field. Sensitivity analyses presented in this article utilize standardized regression coefficients to quantify the contribution of the computer input variables to the magnitude of the wind speed.

Date: 2005
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