Learning on the job: education and dedication to sound underwriting will foster success in hard and soft market conditions.

The hard market creates a number of challenges for underwriters. From this grows a reminder for underwriters to focus on what keeps the insurance industry stable--the dedication to basic underwriting practices and continuous education. This means applying good basic underwriting principles on a daily basis, as well as taking advantage of educational opportunities. These factors will provide fuel for keeping pace with the challenges of changing markets and taking advantage of new opportunities.

Each year in developing seminars for the Chartered Property Casualty Underwriter Society's annual meeting and seminars, the society's Underwriting Section focuses on current challenges that underwriters face. The goal last year was to create seminars that prepare underwriters to deal with the hard market, recognizing that many either have never experienced a hard market or have not worked in one for some time.

The market now shows signs of softening, and some market pricing is flattening, but this does not minimize the importance of education and dedication to sound underwriting. Regardless of market conditions, underwriters need to maintain a strong basis for success, and a solid foundation of underwriting education will help build this success.

One recent seminar, "Accessing the Excess and Surplus Lines Market," reviewed how the E&S marketplace plays a vital role during a hard market. It helps assure that unusual or hard-to-place risks still can be insured. These risks vary from taverns and bars, to professional liability, high-rise apartment buildings, or even fireworks manufacturers. The seminar evaluated the basics of E&S insurance, how it differs from the standard lines marketplace, how it is regulated and the information a surplus lines underwriter needs.

Some basic guidelines for underwriters to follow when working with the E&S marketplace also were explored. These included using common sense, being a creative "out-of-the box" thinker, working with little or few guidelines, and choosing and trusting reliable E&S brokers. Underwriters also were reminded to use caution when working with E&S lines because it is a high-risk situation lot all parties involved.

The seminar included valuable best practices insights for underwriters to use when dealing with the E&S marketplace. For example, quality within the E&S marketplace was emphasized--commitment to "internal" customers, the people within your own organization, and "external" customers, the ultimate recipients of insurance. In addition, improving processes and systems to reduce variation and making continuous efforts to develop professionally and personally also were emphasized as keys for building quality. As the instructors noted, underwriters have the power to influence positive outcomes through dedication to quality and improvement.

Another seminar, "Predicting the Future: Catastrophe Modeling," reviewed the latest on catastrophe modeling of natural and man-made hazards. Underwriters, as well as risk managers, regulators, reinsurers and claims professionals were able to learn about the importance of anticipating catastrophic events.

Catastrophe modeling is a challenging but important topic. Now more than ever, insurance professionals need to attempt to predict the frequency and severity of catastrophic events. Catastrophes represent difficult exposures-they can be low frequency but high severity. They also can be hard to manage, impacting a company's balance sheet and, in the worst-case scenario, causing insolvency. These factors, as well as events such as Hurricane Andrew in 1992 and the terrorist attacks of Sept. 11, 2001, have been wake-up calls for the industry to use more structured catastrophe modeling methods.

It's no longer acceptable to use rules of thumb and unreliable resources for catastrophe modeling. A much more sophisticated prediction process is available, complete with calculations and processes to predict financial loss. These modeling systems take into consideration a number of possible catastrophic events using event loss frequency curves and cat modeling outputs. The consensus is that attempting to predict natural and man-made catastrophes should not be undervalued.

This means more help with developing better strategies and planning. This might seem like a specialized area for underwriters, but it is relevant to all property carriers. The rates and availability of reinsurance will dictate companies' appetites for more traditional exposures.

Whether an underwriter is attempting to predict a catastrophe, place a difficult risk in the E&S marketplace, or adapt to the changing markets, educational resources and basic underwriting practices are the keys to success in any market.

Dave Medvidofsky is chairman of the CPCU Society's Underwriting Section, and vice president and general manager for Information Systems & Services Corp., a member of The Main Street America Group, Keene, N.H. He can be reached at [e-mail].