New capacity will be available to relieve the scarcity of insurance coverage leaving property risks high and dry along the hurricane-battered Gulf of Mexico, but it will take time for the market to adjust–especially if states continue to artificially suppress rates, wholesale brokers warn.

“First and foremost, this is a crisis,” said Tom Albrecht, president and chief executive officer of The Barclay Agency in Montgomery, Ala., during a press briefing here with the leadership of the American Association of Managing General Agents at the group's 80th annual meeting.

“The first reaction from a lot of carriers has been to withdraw, but they will come back over time,” added Mr. Albrecht, AAMGA's president-elect.

How long that transition will take, however, is a question that can't be answered right now, he conceded, suggesting it could take as long as two years before insurers return to the market if there are no further mega-catastrophes.

Noting that it has been the traditional job of wholesale agents to bring markets back, he expressed confidence a solution would be found–but not immediately. “We're going to face some hard times for awhile,” he added.

With carriers withdrawing from the property-catastrophe market throughout the region, retail agents from Florida to Louisiana are finding it hard to place risks or are encountering dramatically higher prices.

Francis G. Johnson, president of Johnson & Johnson Inc. in Charleston, S.C.–who concluded his term as AAMGA president last week–said there is capital out there to cover catastrophe risks, but the ultimate question is whether the price required by insurers will be tolerable to consumers.

“Free markets are the best way to go,” said Mr. Johnson in response to a question about insurer arguments that part of the crisis in Florida, at least, has to do with the state's suppression of rates. “The more deregulation we have, [the more rates will be allowed] to fall where they should be.”

Scott Anderson, executive vice president of Concorde General Agency in Fargo, N.D.–who took over as AAMGA president last week–asked, rhetorically: “Do we want to throw our money in somewhere where prices are artificially low?” Without government rate suppression, he said, “I think there would be more capital out there.”

When asked if another severe hurricane season would force all property-casualty rates to rise across the country–rather than just property exposures in catastrophe-prone areas, as has been the case this year–Mr. Albrecht said he was surprised a more across-the-board hardening of rates did not occur after last year's record disaster losses.

However, the AAMGA's leadership would not speculate about the effect of another severe hurricane season.

To balance their book of business and mitigate losses, Mr. Johnson said some wholesale brokers are getting away, in some instances, from being pure writers of property and moving into casualty lines.

On the issue of regulation, the leadership said AAMGA is opposed to proposals in Congress to create a federal insurance regulator, saying the state system, despite its shortcomings, is a better way to deal with the myriad of local risks.

Mr. Anderson pointed out that the very nature of the property-casualty business–dealing with different regions of the country with their own unique risks–makes it impractical for one federal regulator to oversee the whole industry effectively.

“We know there needs to be some uniformity in state licensing,” said Mr. Johnson, “but to see someone appointed outside of the state regulators would not be the best way to go.”

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