Checklists No Easy Solution, Say Insurers

Checklists that describe insurance policies in simple terms may seem a good method to provide an understanding of policy contents, but their use creates minefields of misunderstanding, underwriters warned regulators.

At the spring meeting of the National Association of Insurance Commissioners the pitfalls of checklists came up in two separate arenas. In both cases, the message from insurance industry critics was the same: Keeping it simple is sometimes stupid.

The leadership of the Catastrophe Insurance Working Group put the checklist back into the catastrophe insurance coverage plan the group is working on after committee members rejected it last year.

According to checklist proponents, they provide a quick way for potential policyholders to see what is and what is not covered.

But American Insurance Association assistant vice president David Snyder said such checklists present a huge opportunity for confusion on the part of consumers as to what coverage they have and don't have.

"They will probably rely on the checklist rather than the policy itself, and that confusion could lead to an increase in litigation," Mr. Snyder said.

In various forums whenever insurers are urged to write policies in "plain English" their response often is every phrase in every policy is put there generally as a result of some litigation over the years.

In a different context, the Property Casualty Committee heard complaints from representatives of the mortgage banking industry that the ACORD insurance data standards group form used for proof of insurance carried a disclaimer saying it was for informational purposes only.

That disclaimer was put on the form last year at the behest of the insurance industry which felt the checklist on the ACORD form could not do justice to the complexities of a commercial insurance policy.

For example, Mr. Snyder noted that while the checklist may indicate the loan applicant has terrorism coverage for the property, there may be conditions in the policy that would limit it more than the bankers would like.

In a business-to-business transaction such as a commercial insurance contract, there is no reason why professionals could not use the checklist for a first look, but then read the policy for a complete understanding of the coverage, Mr. Snyder said.