EQECAT: Move to Seasonal Deductibles Does Not Create Uniform Gain in AAL

Contrary to views held by some, a review by EQECAT Inc., a provider in extreme risk modeling, reportedly shows that the relative increase in Average Annual Loss (AAL) by moving to seasonal deductibles from occurrence deductibles is not uniform in Florida.

An insurance company applying a single factor statewide might be overcharging in some areas, and undercharging in others, Tom Larsen, senior vice president, and David Smith, director of EQECAT’s Research Group, said at the Regional 2005 Catastrophe Management Client-Meeting, in New York City, which began Wednesday.

The greatest proportional increases in AAL are in south Florida, away from the coast. “The greatest increases are in areas exposed to high frequency of losses, but a relatively low expected severity of loss from a single event,” said Smith.

EQECAT said it is continuing to study the impact of seasonal deductibles on the exposure carried by insurers and reinsurers.

As announced earlier, starting in May 2005, annual deductibles in Florida, must be specified in policies, according to newly mandated rules.

The two-day conference focuses on “the future of cat modeling”; the benefits of EQECAT’s updated catastrophe models, which are part of its highly regarded WORLDCATenterprise platform; and, a variety of other man-made and natural hazards, which are key issues for insurance and reinsurance companies in the United States and abroad.

EQECAT will hold another regional client-meeting in Bermuda, June 22-23. The previous meeting in the series, in Dublin, Ireland, earlier this month, focused on managing extreme risk in an uncertain world, and the innovative strategies, and solutions available to help insurers improve business results.