NU Online News Service, May 11, 11:53 a.m. EDT
The Risk Management Solutions Version 11 catastrophe model is shifting rates higher, and causing some risks to move from the admitted market back to excess and surplus lines carriers, but a leader of a managing general agent group cited concerns with the model's impact on how insurers underwrite risks.
At the 86th annual meeting of the American Association of Managing General Agents this week, Immediate Past President Mark Rothert says RMS 11 has had some impact on the availability and cost of reinsurance, causing some risks to move out of the admitted markets.
AAMGA President Wayne G. Forest says a troubling development with RMS 11, though, is that it is causing insurers to turn down business, even risks that have been profitable for them for years, due to the increases in aggregate exposure shown by the model.
Forest's concern is that underwriting is being taken out of the hands of people and is now subject to a computer program.
He also says that while companies and agencies will benefit from the rate increases, entrepreneurs will be left to decide if they can afford coverage or go without.
Forest says he believes the revised model will cause rates to rise in catastrophe-prone areas by 3-4 percent, and could eventually rise as much as 10 percent in some cases. He also believes some of that rate increase will be mitigated with higher deductibles.
Regarding property rates in general, Rothert says there is fluctuation in pricing depending on the region of the country a risk is in.
AAMGA President-elect R.C. Chaffin says rate movement in the markets will be gradual, without the spikes seen in the last hard market in 2006. In Florida, where he is based, the markets are showing such movement, led by the state's insurer of last resort, Citizens Property Insurance Corp.
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