The National Association of Insurance Commissioners' Property Casualty Insurance Committee scheduled hearings yesterday on the issue of catastrophe loss models for the NAIC's September meeting.
In acting, the NAIC was responding to consumer representatives' criticism that the models have led to unnecessary insurance rate increases after the storms of 2004 and 2005. The decision was made at the closing session of the summer meeting here.
In a letter to NAIC President Walter Bell, Alabama's insurance commissioner, signed by J. Robert Hunter, insurance director for the Consumer Federation of America in Washington, and Birny Birnbaum, director of the Center for Economic Justice, Austin, Texas, regulators were urged to “take immediate steps to increase regulation of third-party organizations whose work has such significant impact on insurance rates and availability.”
“NAIC could still assure that cat modelers will never again be allowed to dramatically change their methodologies to the detriment of consumers without significant oversight,” the letter stated.
Mr. Bell said that any regulatory action against insurers relating to use of cat models in rate regulation will be up to individual states.
But he said the hearings could be the first step of the committee exploring the status of catastrophe modelers as regulated entities.
Committee Chairman and Florida Insurance Commissioner Kevin McCarty said the hearings will serve primarily an educational purpose and he does not see any new regulation or law developing from them.
The catastrophe model released last year by Risk Management Solutions, Newark, Calif., played an important role, along with calculations by ratings agencies, in the process of insurers developing their rates and limiting catastrophe exposure in places such as Florida and Louisiana.
Neal Alldredge, senior vice president of the NAIC, said that on the one hand consumer groups criticize the industry for closing its eyes to global warming impact, but on the other reject its efforts to plan for the future through the use of sophisticated catastrophe models.
At the Global Warming Task Force hearing, also held yesterday, Mr. Birnbaum rejected such criticism, asserting that it is part of the industry's mantra of the market solving every problem.
“There will never be enough methods of paying the cost of losses from the rising incidents of catastrophe,” he said. “That is why we have to keep looking at other approaches, particularly mitigation.”
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