Broker Calls For Contract Certainty

New York–The inability of the U.S. insurance industry to ensure contract certainty in a timely manner is an embarrassment for the industry, and if a solution is not found regulators will impose their own timetable, a brokerage executive from Willis Group Holdings said.

Speaking to members of the Conference of Special Risk Underwriters here, Mario P. Vitale, chief executive officer of Willis North America, said the problem of contract certainty–the client having a signed policy in hand–is a major problem that should not exist for the industry.

Mr. Vitale said surveys done by Ernst & Young and the Risk and Insurance Management Society Inc. strongly indicate many clients are not receiving their contracts in a timely manner, a situation that results in great dissatisfaction among clients.

“Dissatisfaction with contract certainty is not good for this industry,” he said.

He underscored both the potential harm and embarrassment it brings to the industry with the example of the terrorist attack on the World Trade Center, where 53 days after insurance was bound the insured had no policy and the buildings were attacked and destroyed.

“Here we have the largest property placements made in history with a new owner,” said Mr. Vitale. “It involved placement with over 20 carriers and 20 Lloyd's syndicates under contract, and here today, five years later, we're still talking about the wording that will govern that loss and the appeal is working its way through the courts. It shouldn't be that way.”

Willis was a broker on the insurance placements for the World Trade Center.

He noted that no other financial industry allows a significant amount of time to elapse between agreement and issuance of a contract, and insurers should issue a policy within 30 days of the agreement.

“We are deluding ourselves if we think otherwise,” Mr. Vitale remarked.

In the United Kingdom, the nation's financial regulator, Financial Services Authority, issued an order in 2004 that London markets must meet contract certainty on 85 percent of policies within 2 years or face imposition of regulation to do so, noted Mr. Vitale.

In a recent report issued by the Association of Risk and Insurance Managers (AIRMIC) in London, that Mr. Vitale referenced, there is significant increase in the number of insurance purchases that have achieved contract certainty.

The figures ranged, in six different classes, from 61 percent for directors and officers liability to 35 percent for both property and employers' liability.

The result for the industry, said AIRMIC, is that depending of class of business, between 76- and 89 percent of members interviewed said they were confident or somewhat confident of achieving contract certainty.

Mr. Vitale noted that FSA has removed its threat of mandatory regulation, preferring the industry design its own solution.

Willis, he said, will be measuring the performance of carriers, and report that performance to buyers, including their timeliness on contract certainty and agreement on wording upon inception.

To achieve contract certainty will mean a change in culture, mindset and action, embracing technology and improving operational process, said Mr. Vitale.