NEW YORK– Insurance carriers should work to deliver commercial insurance policies in a timely manner and to clarify the fuzzy language that many are filled with, a brokerage executive advised at an industry conference here.
Speaking at the 20th Annual Executive Conference for the Property-Casualty Industry presented by National Underwriter Company and sponsored by Ernst & Young and Dewey & LeBoeuf, Donald J. Bailey, chairman and chief executive officer, Willis HRH, mentioned contract certainty, and a binary approach to insurance contracts among his wish list going into 2009.
Mr. Bailey said issues surrounding the World Trade Center after the September 11, 2001 attacks demonstrate the problems that occur when there is no contract certainty. He pointed to the United Kingdom as an example of contract certainty in action, where the practice is mandated by the Financial Services Authority.
The contract certainty issue last month drew the attention of New York State Insurance Superintendent Eric Dinallo who issued a new rule, effective in 12 months, requiring firm policy language to be in place within 30 days,
Mr. Bailey said that in April 2005 only 28 percent of policies were final and complete at inception for Willis' business in the United Kingdom. Today, he said, 100 percent of policies are complete at the time of inception. "Why? Because it's mandated. You have to do it. We should do the same here." Contract certainty, he said, cuts down on errors and omissions lawsuits against brokers, and bad faith claims against carriers.
Regarding a binary approach to insurance contracts, he said many claims fall into a gray area with respect to the language in contracts today. He said, "If you look at claims–five percent are clearly absolutely covered, five percent are clearly absolutely not covered, and then we have the other 90 percent that we sit around with for a couple of years."
Mr. Bailey added, "I think we can take a lot of steps forward in terms of creating contracts that are more binary: if X happens, then Y."
He said all that is happening in the current environment is that lawyers are getting rich because of ambiguity in the contracts. "We have to do a better job of sitting down, partnering, re-looking at these contracts, and creating a far more binary approach to how these things are going to play out for our clients."
Among Mr. Bailey's other wishes for the industry, he mentioned moving forward with an Optional Federal Charter, developing and training more industry talent, and a consistent approach to broker/agent compensation transparency.
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