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New cat model, economy big concerns for insurers

New cat model, economy big concerns for insurers

NEW ORLEANS—The update of Risk Management Solutions Inc.'s U.S. hurricane model was among the top concerns for insurers attending this year's annual meeting of the Property Casualty Insurers Assn. of America.

The state of the economy and how to recruit talented people to the insurance business also received an airing at last week's conference, which carried the theme “decision-making in an era of uncertainty,” in New Orleans.

The revised RMS model, which expanded some insurers' exposures, has stirred controversy since the Newark, Calif.-based company announced that it would introduce the model, which it did in February.

Among other things, the RiskLink Version 11 U.S. Hurricane Model includes higher inland wind speeds and greater building vulnerability, as well as changes in some secondary factors. As a result, reinsurers and reinsurance intermediaries are encouraging their clients to use multiple models to assess their exposures.

“I hate” the new model, said Parker Rush, president and CEO of Dallas-based The Republic Group, as a panel of industry executives discussed decision-making in a time of crisis. He said he thought the new model used too small an amount of loss data in making the changes.

Not surprisingly, concerns about the model arose in meetings between insurers and reinsurers, observers said.

The model came up “in every meeting,” said Michael Finnegan, chief operating officer of Liberty Mutual Group Inc.'s Stamford, Conn.-based Liberty Mutual Reinsurance unit. He said he encouraged clients to use multiple models when they could.

John Faustman, executive vp of BMS Intermediaries Inc. in Philadelphia, said he “absolutely” encourages clients to use multiple models. He said they need to look at exposure aggregations, not just modeled possibilities.

But William H. Eyre Jr., managing director-brokerage for Towers Watson & Co. in Philadelphia, said he thought the greater reaction occurred last year when the model was announced but not yet released. “Much of the hysteria is over,” he said.

The overall concern at the PCI conference was economic recovery, which Mr. Eyre called “anemic at best.”

“The greatest uncertainty we face is the economic outlook,” said PCI President David Sampson in his opening address. Companies are “immobilized” because of uncertainty over fiscal and regulatory policy. In addition, insurers are facing “growing regulatory burdens,” he said.

He said he believes any change was “not likely” before next year's elections.

In fact, the run-up to the election already is driving discussion in Washington, said Mr. Sampson. He said that while some people are making a decision “to make no big decisions,” leaders have to make decisions without complete information.

That theme was repeated several times during the industry executive panel discussion, with panelists agreeing that the top manager should consult with senior people but realize that making a decision rests with the top executive.

“When you're wrong, course-correct,” said The Republic Group's Mr. Rush.

One challenge facing the industry is attracting potential employees, the panelists agreed.

“It's like we skipped a generation,” said Mr. Rush. As baby boomers retire, there's a loss of institutional knowledge, he said. Under a program the insurer launched three years ago, trainees learn “at the feet of some really experienced underwriters,” he said.

Mr. Rush also said that uncertain economic times mean that “you can get some of the best, most thoughtful college grads” to enter the insurance industry.

Robert Jarratt, president and CEO of the Ridgeland, Miss.-based Southern Farm Bureau, agreed that hiring new talent has become easier, in part because more colleges have insurance education programs.

“Try to get them in diapers and grow them in the operation,” he said, noting that his company has its own training programs for adjusters and underwriters.

Daryl Bradley, president of Liberty Park, N.J.-based Everest National Insurance Co., said his company has a small hiring program at colleges as well, concentrated primarily on claims adjusting.