The inability of U.S. insurers to provide 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 top brokerage executive contends.
The problem of contract certainty–the client having a signed, accurate policy in hand when coverage goes into effect–is a major problem that should not exist for the industry, according to Mario P. Vitale, chief executive officer of Willis North America.
Surveys by Ernst & Young and the Risk and Insurance Management Society strongly indicate that many clients are not receiving their contracts in a timely manner, a situation that results in great dissatisfaction among clients, said Mr. Vitale, speaking here to members of the Conference of Special Risk Underwriters.
"Dissatisfaction with contract certainty is not good for this industry," he said.
He underscored the potential harm and embarrassment that lack of certainty brings to the industry with the example of the terrorist attack on the World Trade Center, where the insured had no policy in hand when the Twin Towers were attacked and destroyed–53 days after insurance coverage was legally bound.
"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, the Financial Services Authority, issued an order in 2004 that London markets must meet contract certainty on 85 percent of policies within two years or face imposition of regulation to do so, noted Mr. Vitale.
A recent report issued by the Association of Risk and Insurance Managers in London referenced by Mr. Vitale showed a 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, according to the AIRMIC report, is that depending on the class of business, between 76 percent and 89 percent of members interviewed said they were confident or somewhat confident of achieving contract certainty.
Mr. Vitale noted that the FSA has removed its threat of mandatory regulation, preferring that 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, according to Mr. Vitale.
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