CFA: Don't Let Storms Provoke Rate Hikes

While the industry has remained fairly silent on the issue, there have been exceptions. Earlier this month Safeco president Mike LaRocco told an agents conference that rates will have to be raised in the states affected because the risk cannot be borne on a nationwide basis.

Also on Tuesday AIG Chief Executive Officer Maurice Greenberg speaking to a brokers group speculated the hurricanes would mean higher premiums for those in the hard hit areas and showed the need for companies to put aside catastrophe reserves.

Mr. Hunter, a former Texas insurance commissioner, asserted that over the past ten years the industry has established the means of more accurately predicting hurricane risk and setting rates to cover that risk.

After Hurricane Andrew in 1992, the art of scientific modeling was improved so that rate makers no longer had to rely on a mere 20 to 40 years of experience.

"The modelers used the best experts and all available historic hurricane data to generate thousands of years of virtual experience so that rates could be set more precisely," Mr. Hunter wrote. "Using the model, data on the impact of these thousands of virtual hurricanes were matched with the portfolios of homes by each insurer so that resulting rates would reflect the actual geographic distribution of the risk of the specific insurer."

One season of hurricanes should not alter the science underlying the models and cause rates to skyrocket, Mr. Hunter asserted.

He even raised the possibility that rates could be slightly lowered if current estimates of insured loss turn out to be inordinately high.

As for the unusual frequency this year of storms, Mr. Hunter said the current models may already take such an occurrence into account.

Florida's top insurance regulator, Tom Gallagher, said recently that the current hurricane season will not necessarily lead to big rate hike approvals. And he has called specifically for tinkering with the deductible formula that this year has seen many policyholders damaged by several hurricanes hit with multiple deductibles.

While Florida property homeowners may face higher premiums, the same cannot be said at the moment for their counterparts across the pond.

A top official of London-based brokerage Aon Limited said earlier this week that losses stemming from the '04 hurricane season will not likely be enough to reverse the current trend of declining insurance rates in the United Kingdom.

Nick Maher, chairman Aon's Global Property Practice Group, said premiums are unlikely to rise for UK companies unless they have global insurance programs in North America.