It is this fundamental principle of ‘fairness’ in the contract that drives many of the actions Commander Kennedy alludes to in his message. It is only fair that all parties to the exchange of contracts should have a voice in the operations of the company; each subscriber should have a vote and be fully represented on the SAC. Actuarially adequate rates must be put in place and maintained because an under-priced policy of insurance effectively requires one party to unduly subsidize the losses of another, hence an issue of fairness. Underwriting standards themselves can be viewed as issues of fairness in that they ensure that the pricing and loss control measures necessary to ensure conformance with the pricing structure of the contract are in place and in force. That each subscriber may have the opportunity to ‘benefit’ from the relationship with the other subscribers implies that the contract of insurance must fairly consider the interests of all parties.

These are not simple issues. Difficult decisions and far-reaching consequences accompany our efforts to protect the interests of all the subscribers equally in this process. At its regular meeting in February, the Subscribers’ Advisory Committee (SAC) approved a resolution directing management to “…implement strict coastal exposure reduction measures…[for] individual residential exposures that present the greatest potential for loss to effect an aggregate reduction in catastrophic probable maximum loss…[as] necessary to protect the solvency of the company.”

As a result of this direction, an analysis of premium adequacy with respect to computer modeled expected losses was conducted; this resulted in the selection of some 2,200 residential policies nationwide for implementation of more stringent risk mitigation measures. In some coastal states these risk reduction actions will take the form of increased deductible amounts and in others higher rates; where state ‘wind pools’ exist, wind coverage may be excluded and some coastal business placed into those pools.