Models seen as empowering for risk managers

Commercial insurance buyers can use catastrophe and other pricing models to strengthen their positions in renewal negotiations with underwriters and better illustrate risk management strategies to their executives, a panel of experts said.

Models, which insurers and reinsurers have long used to price risks and can be accessed through brokers, can also be used by risk managers to understand better their exposures and how much risk they want to retain, they said.

Underwriters often justify rate increases by saying they are based on modeling, said Theresa Severson, Aurora, Illinois-based senior vice president, insurance and risk manager, at Kite Realty Group Trust.

“Well, guess what? I have my models, too,” she said during a session last week at the Chicagoland Risk Forum, the Chicago chapter of the Risk & Insurance Management Society Inc.’s annual conference.

Risk managers can use their models to question underwriters’ assumptions, Ms. Severson said.

“So, ‘What is your loss pick versus my loss pick? Did you consider when you did your modeling that I just sold a large asset that had the majority of my claims? That I am no longer in this region of the country? That my portfolio has changed?’ It just opens a whole different door,” she said.

In addition, the models can be used to explain insurance rate increases to senior executives at a policyholder company, Ms. Severson said.

Risk managers can use the models to control the view of their organization’s risks, said Hemant Shah, San Francisco-based CEO of Archipelago Analytics Inc.

“You’re shifting the conversation from ‘I’m buying insurance’ to ‘I might sell you some of my risk,’” he said.

Data from models can be used as negotiating tools, said Michelle Windhauser, executive vice president, property practice leader, complex risk, Central region, at Hub International Ltd. in Chicago.

For example, a risk manager could show how a property portfolio has been profitable for the company’s captive and say it would be prepared to take on more of the risk, depending on the renewal terms.

“It changes the dynamic entirely,” Ms. Windhauser said.

When risk managers first join a company, models can be used to assess the organization’s exposures and the insurance program in place, said Marie Kupferschmid, Lake Zurich, Illinois-based vice president, insurance risk, at medical equipment manufacturer Danaher Corp.

“As a risk manager, you need to assess the programs that you have. Is it the right limits, retentions, right structure for the company that you are and the company that you want to be,” she said.

And as a company changes its operations, models can be used to adjust programs to reflect the changes, Ms. Kupferschmid said.