Bermuda insurers and brokers have initiated a contract certainty code of practice, which will be in effect for July 1 renewals, said the president of a Bermuda reinsurers' organization.
Brad Kading, president of the Association of Bermuda Insurers and Reinsurers (ABIR), told National Underwriter in an e-mail that the contract certainty code is a voluntary effort to demonstrate commitment to excellent customer service. He said it also should help to protect against coverage disputes. A much publicized dispute was over coverage of the World Trade Center after the terrorist attacks of Sept. 11, 2001.
"We've just entered into a testing phase" with the code, Mr. Kading noted. "The belief is that Bermuda carriers perform very well on contract certainty, and this next six months affords us an opportunity to measure that performance."
At renewal time, as companies and brokers move ahead with the code, customers should see an increased focus "on the key questions that need to be answered, with specific deadlines given for getting answers to those critical questions," explained Mr. Kading.
"Anything outstanding should be identified and addressed in a timely manner," he said, adding that companies will monitor performance, put internal controls in place, and then be prepared to commit to improved performance on Jan. 1, 2009, the final implementation date.
Implemented by ABIR, the code originally was suggested by several members of ABIR and the Bermuda Insurance and Reinsurance Brokers Association, he said. ABIR, Mr. Kading noted, represents 22 Class 4 insurers and reinsurers–the global insurers and reinsurers operating out of Bermuda.
During calendar-year 2007, Mr. Kading said ABIR members wrote $59 billion in global gross written premium on a capital and surplus base of $73 billion.
He added that ABIR members provide 40 percent of the U.S. property-catastrophe reinsurance market; 25 percent of the general U.S. reinsurance; 25 percent of the medical malpractice insurance; and are major players in U.S. crop insurance and reinsurance, providing 33 percent of the crop insurance coverage for Iowa.
The contract certainty code has been hailed by the Bermuda Monetary Authority as a positive development supporting Bermuda's position in the reinsurance industry.
Matthew Elderfield, chief executive officer of the BMA, said in a statement, "From the regulatory perspective, this initiative should further reduce operational and financial risk within the market, which ultimately is in the best interests of clients using reinsurance services offered by Bermuda."
The BMA defined contract certainty as the "full and final agreement of all terms and conditions between the (re)insurer and (re)insured at the time of binding. This will be evidenced by a binder, cover note or similar which reflects all terms and conditions and which is agreed by the (re)insurer. The final committed capacity must be clearly identified."
The BMA said it looks forward to the analysis of market participation that will follow the testing period post-implementation, which will serve to demonstrate the scale of support for, and adherence to, the Code.
Principles the Code of Practice that members of ABIR and BIRBA will adhere to include:
o Prior to binding, the brokers will ensure that the (re)insurers are provided with a submission that includes all the necessary information in order that the requirements for contract certainty can be met.
o Brokers will notify all terms to the (re)insured and obtain the (re)insured's agreement before binding.
o It is the joint responsibility of the broker and (re)insurer to ensure that before binding, all terms and conditions are agreed to by the (re)insurer and the (re)insured.
o Prior to binding, final committed capacity must be agreed with (re)insurers.
o At binding, any questions will be identified and will have been agreed to by all parties in advance.
o At binding, formal evidence of cover will be issued which fully adheres to the formal quotation upon which a binding order was issued.
o Post binding, amendments will be agreed to by all parties before becoming effective and will be documented as endorsements to the contract.
o All ABIR and BIRBA members will monitor and evaluate their contract certainty performance in accordance with the standards set out in the attached Guidelines.
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