Insurance contracts are complicated documents, especially for the average consumer. Consequently, most states require insurers to draft policy language to comply with “readability” standards to make it easier for consumers to understand complex coverage terms. Recently, regulators have focused on the extent to which policy forms are physically accessible to consumers.

The National Association of Insurance Commissioners formed a Transparency and Readability of Consumer Information Working Group in 2012 to address this issue. “Transparency,” in this context, refers to the ability of consumers to obtain and peruse different carriers’ HO policy forms before purchasing coverage.

Traditionally, consumers purchase coverage from an insurer based on a broad summary of the insurer’s contract terms, usually the declarations page. But if a prospect wants to delve into a company’s coverage terms, he would have to wait until receiving the company’s entire base policy form in the mail—usually only after the customer purchases the policy. In other words, you have to buy the policy before you can know which losses are covered.

Some states have made steps toward policy transparency. The Nevada Department of Insurance invoked statutory authority to issue a data call that required the 10 insurers with the largest market share in the state to submit complete homeowners’ policy forms, including mandatory endorsements, which the department proceeded to post on its website.

According to Nevada regulators, the Nevada Insurance Council—the state insurance trade group—declared the process and result to be “awesome.” The Missouri department, which lacked statutory authority to compel insurers to submit forms for website posting, asked the state’s 20 largest carriers to do so voluntarily. Only one company declined.

Online Policies: Best Practices

Not surprisingly, a number of operational issues arise in connection with such an undertaking, and the working group’s “best practices” guide is intended to provide answers. A draft of the guide, still a work in progress, can be found on the working group’s website.

Among the topics addressed is the method of collecting forms. Regulators could use SERFF to piece together base policy forms and recently filed form modifications, but this would be a labor-intensive process. The draft endorses the Nevada approach: issuing a data call, if authorized by statute. Otherwise, DOIs should ask insurers to participate voluntarily, which seems to have worked well in Missouri.

Then there is the question regarding the number and type of policy forms to be included. Should the DOI include only personal lines forms? Which products should be included? Should DOIs collect forms for all carriers in a particular market segment? Should collection be limited to a specific number of companies, or only to those companies that make up a specific percentage of the state’s market? Should DOIs collect and post only base policy forms, or should they include mandatory and optional coverage endorsements? What about exclusionary endorsements? How should the forms be formatted for posting on DOI websites?

The working group suggests that “to maintain the integrity and security of the posted documents, regulators should include some sort of watermark on policy form documents that are posted online to deter alteration and misuse of forms. Regulators could also add headers and footers to the documents to denote the date of posting and other pertinent information.”

This likely will cause concern to insurers and agents. Although it is encouraging to know that the working group understands the potential for fraud and abuse that comes with online posting of policy forms, superimposing “some sort of watermark” on the forms may not be enough. One hopes that the final version of the best practices guide will explore issues involving security and integrity more thoroughly.