One of the most contentious subjects broached at the
In August, a NAIC study group completed a report on the feasibility of building a national hurricane model and a national earthquake model. Insurance industry attendees of the conference questioned the cost of, and need for, a public model given the well-regarded private models on the market.
However, Karen Clark, president and CEO, of Boston-based
Clark says regulators need to understand catastrophe risk and need the appropriate tools to fulfill their regulatory duty.
“Insurance regulators need to be much more knowledgeable about these risks and the models,” she says. “Developing a public catastrophe model is one viable option for doing that.”
Clark says she doesn’t think the NAIC has any intention of replacing the private CAT models. “They could use a public model as a tool to benchmark the information coming out of the private models.”
On the cost front, she says the real discussion should center on the net costs not just upfront development costs. “The net costs are much lower when you take into account how much state insurance departments are already spending in this area,” she says, noting that states already spend a good deal of time and money to review the results that come in from the private models and that carriers spend money on often-contentious rate filings. “It could really result in a much more streamlined process. If done well it could save money.”
According to Clark, the challenges to the NAIC building a successful model are less technological than political. Information from the
For the U.S. as a whole, CAT risk is now the dominant risk for companies writing property business, she notes. “Today, CAT risk is where it is at, and it’s growing.”
