NU Online News Service, Oct. 12, 11:56 a.m.EDT

SAN DIEGO—Risk Management Solutions' revisedcatastrophe model has already been mentioned as a reason forinsurers' rate increases for some property risks, but how arebrokers and insureds handling the news that premiums are going up,in part due to a model revision?

“Not well at all,” says Judy Patterson, a property underwriterat specialty-insurer Beazley, interviewed at the NationalAssociation of Professional Surplus Lines Offices annual conferencehere.

She adds, “I think in some areas, like Florida, for example,insureds and agents and brokers have a little bit of model fatigue.They've been through a number of model changes.”

Patterson notes, however, that the model has a significantimpact in Texas and along the Gulf Coast, where insureds andproducers have not paid as much attention to the models as havethose in Florida. “I think Texas and the Gulf Coast is where it'sreally having an impact right now, because it's kind of new tothem,” she says.

Patterson says she recently came from a meeting with a Texasbroker who told her, “I don't want to talk about [the new model]again!” She says, “I felt sorry, but that's the reality of where weare right now.”

The model, RMS Version 11.0, makes adjustments to the impact ofwind during a hurricane, possibly putting more risk inland as themodeler looks at the interaction of wind and the surface of thesea. The new model is based on new data derived from the 2004 and2005 hurricane seasons as well as Hurricane Ike in 2008.

Chris Treanor, president of Preferred Concepts, a nationalprogram administrator and specialty broker, observes that themarket is “less spooked” now by the new model than when it wasfirst released.

“Six months ago, I would have said it would have a huge impact,but that hasn't played out,” Treanor says. “The industry has notblindly accepted it.”

While the market is reacting to the model by reevaluating (andpossibility shedding) exposure, this has not yet led to an influxof new business to the specialty arena, he adds—although he notedthat could change during the 2012 first quarter, when new treatiesare signed.

Paterson believes Beazley has a good understanding of thechanges in the model, and says the changes agree withBeazley's experiences from Hurricane Ike. “Our personal experienceduring that cat echoes some of the changes RMS is making as far asextending the wind fields further inland,” she says.

Explaining Beazley's response to the model change, Pattersonsays, “We have adopted RMS Version 11.0. I know there are somecarriers who are using blended models, or trying to, in some ways,temper the impact.

“But we buy a lot of catastrophe reinsurance, and we're going topay for our reinsurance based on Version 11 results. So I don'tthink we have any choice but to adopt Version 11. That's going todictate reinsurance availability and reinsurance pricing.”

Regarding the weight insurers place on this model and others,she says, “I think it varies considerably from company-to-company.Some companies are very model-driven in their risk selection andpricing. Others take a different approach.” Patterson adds thatBeazley looks at each account individually, factoring in how theaccount models and how it impacts the company's portfolio alreadyin force.