WHEATON, Ill., Dec. 17, 2009--Homeowners insurers have access to a new rating plan for writing earthquake coverage.

The American Association of Insurance Services (AAIS) has initiated a countrywide filing of a new earthquake rating plan under its Homeowners Program. AAIS is a national advisory organization that develops policy forms and rating information used by more than 600 property/casualty insurers throughout the U.S.

The earthquake plan, which consists of self-contained manual supplements, is available for use by any homeowners insurer, including those not affiliated with AAIS for use of its Homeowners Program. (AAIS Homeowners affiliates get the plan as part of their affiliation.) Proposed effective dates for use of the plan in individual states range from Jan. 1 through July 1, 2010.

A generic sample earthquake manual supplement has been developed for review by interested companies not currently using the AAIS Homeowners Program. To inquire about reviewing a copy, contact Rick Maka, director of marketing, at rickm@AAISonline.com, or by calling 800-564-AAIS, ext. 222.

New features

The plan, described in a recent article in AAIS's Viewpoint magazine, provides state-specific loss cost base amounts and rating factors that vary by zone to reflect a risk's location and type of construction, as well as the policy form, deductible, and amount of insurance.

“This new rating plan includes features not found in other standardized programs,” says Greg Jaynes, AAIS chief actuary.

“Among other things, we have developed premium credits for frame construction, which is generally more flexible than masonry construction and, therefore, more resistant to earthquake damage. These ‘frame factors’ vary by earthquake zone for greater accuracy.

“We’ve also introduced rating factors for the age of a structure and the number of stories, as well as premium credits for certain loss mitigation features on older homes.”

Not unwieldy

To produce the plan, AAIS actuarial staff has built upon modeled data to develop loss costs and rating factors that will allow most carriers to price earthquake exposure more precisely than in the past. That, in turn, could make earthquake coverage more attractive to homeowners who need the coverage more than they think, but who might pay less than anticipated.

Among the benefits of the new earthquake plan, says Jaynes, is that it provides for a greater segregation of risks without creating an unwieldy set of risk categories that would be difficult for many carriers to implement.

“Homeowners carriers of all sizes can benefit from this innovative and practical approach to rating earthquake coverage,” says Paul Baiocchi, AAIS president.