Executive Report

Liability insurance and new 'claims made' "policy

THE Illinois Department of Insurance (DOI) and the insurance industry have come to an agreement over a new way to write liability insurance. One of the complaints insurance companies have had in recent years is that they have had to pay out on claims that may have occurred years ago, long after a policy has been cancelled or may have expired.

Insurance companies have been pushing for the acceptance of a new type of form, called "claims made," which will limit claims to the year in which they occurred. In a movement spearheaded by the Insurance Services Office (ISO), an insurance industry adviser, about 27 states had approved the "claims made" form. Illinois' DOI chief John E. Washburn, expressing concern for insurance consumers, joined with the insurance commissioners of 24 states in an effort to block implementation of the new form. When the ISO presented a revised version in January, including consumer safeguards, Washburn approved the form for Illinois.

The safeguards include allowing the policyholder to purchase "tail" coverage, which in essence changes a "claims made" form into an "occurrence" form by providing coverage for any claims made after a policy is cancelled or if the policyholder changes insurance companies. Also, the amount of coverage available under the "tail" must be equal to what was available under the original policy. And finally, the policyholder is entitled to full information about any loss or occurrences under that policy if he or she decides to "shop around," making that information available to another potential insurer.

Washburn said the new policy form could be useful in breaking the "intolerable boom and bust cycle that has dominated liability markets for decades."

The new form, however, could prove to be a "two-edged sword" for insurance companies, according to William Dart, lobbyist for the Illinois Manufacturers' Association and coordinator of the Illinois Coalition on the Insurance Crisis. Insurance companies, he said, would have to make known just exactly what their losses have been under the claims made form, and if they no longer have to worry about having to pay for accidents that happened years ago, they may not be able to justify raising rates to cover those losses.

Washburn said the new form, which is intended to be used as an alternative rather than a replacement for the occurrence liability form, would be phased in over the course of the year as policies are due to be renewed.

The Illinois Insurance Assistance Program was established in December, by the DOI in conjunction with the insurance industry. Any Illinois consumer who cannot obtain commercial liability insurance coverage through normal channels can apply to the program by contacting any insurance company or agent licensed to sell property/casualty insurance in the state.

Washburn said that while the program cannot guarantee coverage, it will explore all possibilities. If nothing else Washburn said, "we will find out what is uninsurable in the state."

Nora Newman Jurgens

Bonds sell at low rate

ILLINOIS maintained its high credit rating as it took $100 million in general obligation bonds to market in January, attracting the lowest interest rate in five years, according to Gov. James R. Thompson. First Chicago was awarded the sale with a bid of 7.6069 percent. The state's rating remains at AA+ (Standard and Poor's) and AAA (Moody's Investors Services). The bonds will fund $50 million in capital development projects, $45 million in transportation projects and $5 million in coal development projects.

Nora Newman Jurgens

34/March 1986/Illinois Issues