Wholesalers can help you save time
and money with catastrophe modeling.
Retail agents historically lose millions of dollars in
premiums (and headache medicine) attempting to structure a
sophisticated property risk. Often, the cause of this chronic
condition is not lack of knowledge or experience. Rather, the
symptoms stem from a lack of resources. It’s called
“Resource Dysfunction,” and in the tradition of
assisting retail partners, several wholesale brokers offer
catastrophe modeling services with hopes of curing this
CAT modeling is not new. Carriers, reinsurers, engineers and
even a few large retail agents have used similar data for
decades. In recent years, members of the wholesale community
saw an opportunity: Benefit retailers and insureds by providing
the extensive (and expensive) data usually collected at the
back-end of the transaction upfront.
“We can analyze and portray a risk before it goes to
the carrier,” says John Jennings, president and CEO of
Crump Insurance Services. In February he announced a
relationship with Risk Management Solutions’ new RMS
Wholesale Broker RiskBrowser CAT-modeling platform, which, he
explains, “helps facilitate the speed and consistency of
the quoting process.”
In short, CAT models are a summary of probable loss derived
through a variety of factors including structural and
geographical information, historical loss data, and
geocoding—a process of assigning a geographic identifier
to a specific location. The latter is a critical part of the
model. Codes are based on factors such as latitude/longitude,
street address, and zip code. Less consistent models default to
a generalization, such as within a zip code, while more
consistent models can measure to an exact point. Such
consistency significantly increases the quality of the data.
Models produce a table of expected losses over certain periods
of time, ranging anywhere from 10 to 1,000 years.
Few understand the value of this service better than David
Pagoumian, president and COO of Napco, a property wholesaler
that began offering modeling to clients in 2002. “Napco
was early in utilizing the CAT modeling software for use in the
wholesale arena and has spent the past six years refining the
utilization of the model specifically to establish our platform
and leverage better terms and conditions for our
clients,” he says. “Application of the model is a
necessity for 90% of our accounts due to significant
Risk Placement Services, Inc. (RPS), another of the early
wholesalers to see the value in this service, established an
exclusive analytic unit in Nashville, Tenn.
RPS President Joel Cavaness says that in addition to
determining adequate coverage, wholesalers use modeling data to
negotiate with underwriters.
Pagoumian agrees. “While experienced underwriting,
market intelligence and quality data will always be the
backbone of a successful property placement, the model is an
effective pre-qualification tool helping Napco get the right
account into the hands of the right underwriter.”
Dave Williams, managing director of property at RPS, says
that by providing models, wholesalers give underwriters easy
access to critical information about the account, making it
easy for them to act quickly on submissions. “Exercising
more control over the consistency of information going in means
more consistent information coming out,” he says.
“The underwriter wants to know: ‘is the risk laid
out in a way that leads me to the key issues? I’d much
rather deal with that agent than the
But it’s not all about underwriting. Models produce a
bird’s eye view of how carriers see their clients. The
data are appreciated by insureds who feel they’ve been
told to pay no attention to the mysterious actuarial science
behind the curtain.
Williams describes how modeling in conjunction with
engineering studies helps RPS agents provide mitigation ideas
to change the risk itself and reduce loss potential. He
provides an example of when modeling helped identify a risk
from improperly anchored A/C components on a hotel roof. Using
the data, RPS was able to assist the agent in offering
mitigation solutions with specific dollar amounts in
conjunction with the loss reduction.
So why don’t more retailers and wholesalers use this
product? As with any potential remedy, there’s a warning
label. Expense still serves as the fundamental reason why CAT
modeling is not boilerplate on the front-end of the classic
risk transfer transaction. The process can be labor intensive,
and admittedly the value of extensive modeling is questionable
on smaller risks with fewer locations or limited schedules.
Williams cautions that access to the service is not a free ride
for brokers. He warns that information contained in models must
transfer consistently to carriers and retailers and should not
be contingent on someone who is not a professional analyst.
Williams believes CAT-modeling services will continue to
grow as a front-end resource. “By the end of the year, I
believe most major wholesalers will be offering this
service,” he says. Ready to face your resource
dysfunction? Call your wholesaler.
Amrhein is wholesale editor.