N.Y. Moves To Assure Contract Certainty While RIMS Seeks Buyer Feedback Role

Contract certainty will help all parties avoid the kind of protracted claims litigation that followed the attack on the World Trade Center, according to the department.

Mr. Dinallo became personally involved in the WTC claims process and helped facilitate a $2 billion settlement last year.

The department noted that while resolving the WTC dispute, it had discovered certain common industry practices could result in contracts remaining unclear for months after a policy's inception.

Mr. Dinallo's circular letter, the department explained, "is designed to eliminate these practices and their potentially harmful effects on the insurance market and New York's economy."

The New York action, the department said, is similar to that taken by the United Kingdom's Financial Services Authority in 2004. The FSA called on the London market to provide greater contract certainty at the inception of a contract, with full documentation delivery promptly thereafter.

RIMS said it is "eager to learn the next steps for the program, particularly how the New York Insurance Department intends to measure compliance and what penalties noncompliant companies can expect to face."

The organization said it is urging an evaluation program allowing insurance clients to provide feedback on whether providers meet, exceed or fall short of expectations.

A representative for the New York Insurance Department said in an e-mailed statement that if insurers and brokers cannot meet the requirements of the regulation in a year, "the department would consider regulations spelling out more detailed rules. Regulations have the force of law and penalties can be assessed on licensees."

"But we would prefer the industry itself take the necessary measures toward attaining compliance in accordance with a principles-guided regulatory approach," the department official added. "The U.K. Financial Services Authority has attained notable success with contract certainty using this approach."

The message also said in part that the department believes client feedback is a good idea, and would be encouraged if the industry took charge of the project and kept it informed of their progress on any issues that they believe need to be ironed out.

Besides RIMS, the only party to comment publicly on the regulation so far is the Willis brokerage, which said it has long held the belief that contract certainty is one of the basic principles of service and should be adopted across the industry.

"There is absolutely no excuse for policies to be delivered months after their inception–an all-too-commonplace practice in this business," said Willis Chairman Joseph Plumeri.

RIMS said that in the wake of Mr. Dinallo's action, it expects other state insurance departments to also "take the initiative to reform the insurance placement process or, at a minimum, providers themselves will take steps to lead the process internally."

RIMS said it is ready to offer guidance to service providers seeking buyer perspective as they develop measures for meeting the contract certainty requirements.

The New York Insurance Department statement said contract certainty is not an issue with most insurance policies because they are written on standardized forms that the department approves.

However, the department noted that in some cases, because of the size or unique nature of the risk covered, issues concerning contract certainty are more likely to arise. These include special policies issued to large commercial entities or to special risks, policies written in the excess lines market, and policies issued to other insurers via reinsurance.

Contract certainty is an issue at the heart of customer service deficiencies on the part of brokers and insurers, according to RIMS, which said its members are "grateful to Superintendent Dinallo for taking the necessary steps to tackle the issue, and hope that providers will work speedily and aggressively to comply."

RIMS said that over the years, corporate insurance buyers have voiced increasing concerns about the lack of responsiveness and quality of services offered by insurance providers, which prompted the group in 2005 to develop its "Quality Program" to improve the service and delivery of insurance-related products to buyers.

The Quality Program has guidelines that are under development focusing on effective relationship and insurance program management.

RIMS also launched a Quality Forum–an annual meeting convening risk practitioners and CEOs and other top executives from the largest brokers and insurers to discuss quality improvement in the insurance placement process. Forum discussions in some cases have allowed certain insurers to develop internal programs to expedite the insurance placement process, RIMS said.

RIMS' "Quality Guidelines for Performance Expectations" are online at http://www.rims.org/resources/QualityProgram/Documents/QIP_Guidelines_ONLINE.pdf. Further information on the RIMS Quality Program is available at www.RIMS.org/Quality.

Because the World Trade Center contract language between developer Larry Silverstein and insurers had not been firmed up before terrorists flew two airliners into the Twin Towers, a legal battle developed over whether the destruction required reimbursement for one or two occurrences.

Juries found that some policies required reimbursement for two events and others for one occurrence.

"As the World Trade Center dispute shows, all sides need to be clear about the terms of an insurance policy before coverage begins," Mr. Dinallo said in a statement. "The alternative hurts everyone. Resources that should go to rebuilding get diverted to legal fees. Delay is added to the [WTC] damage."