In 1986, ISO introduced a new Crime program which replaced numerous nonsimplified policies and hundreds of endorsements. ISO has learned that there is a general dissatisfaction with the approach for rating crime coverages. In this article, I'll give you an overview of how they have solved this "problem."
In 1986, ISO introduced a new Crime program which replaced numerous nonsimplified policies and hundreds of endorsements. ISO has learned that there is a general dissatisfaction with the approach for rating crime coverages. Also underwriters are experiencing difficulties in obtaining the necessary information from insureds in order to develop premiums according to the current manual rules.
ISO has entered into an agreement with the Surety Association of America to share forms, endorsements and rating information so that each organization can independently develop its own crime and fidelity products.
In most states ISO has introduced, a complete restructuring of the Crime Program forms and endorsements, rules and rating plans.
This article will briefly review the new program. The countrywide effective date for most states was July 1, 2000. As of February, 2001 most insurers have their own effective date. All agents must find out from their insurers what effective date they are planning to use.
SUMMARY OF SIGNIFICANT FORM CHANGES: There has been a total restructuring of the Crime Program to introduce a series of separate coverage forms and policies to address the specific coverage needs of commercial and government entities, as well as to include coverage for fidelity loss exposures.
The Crime Program will now be comprised of:
• Basic coverage forms
• Monoline policies
• Optional crime and fidelity insuring agreements
• Common crime and fidelity endorsements
• Fidelity amendatory endorsements
• Crime amendatory endorsements
Various coverage forms have been developed for use with the commercial package policy (CPP). In addition, policies have been developed for use on a monoline basis. The Crime forms used with the CPP incorporate the Crime General Provisions Form, thus eliminating the need for that separate form. Both discovery and loss sustained versions of the coverage forms are being offered.
The primary new form will be the Commercial Crime Coverage Form (Loss Sustained Form) CR 00 21. It will contain 20 new and revised form definitions. The significant new definitions are “Client,” “Employee benefit plan(s),” “Manager,” “Member,” and “Other property.”
The form will contain six Insuring Agreements:
• Employee Theft
• Forgery Or Alteration
• Inside The Premises – Theft Of Money And Securities
• Inside The Premises – Robbery Or Safe Burglary Of Other Property
• Outside The Premises
• Computer Fraud
• Money Orders And Counterfeit Paper Currency
Any, or all of these Insuring Agreements, may be selected.
The form does contain some new exclusions that will need to be carefully reviewed before the policy is issued. There are over 100 new and revised endorsements under the program.
Complementing the coverage forms are monoline policies designed for crime coverage written outside of the CPP. These policies include both the Crime General Provisions and the Common Policy Conditions. Separate discovery and loss sustained versions are being offered as well.
Ever since the current Crime program was first introduced in 1986, ISO has received numerous comments suggesting that the number of separate forms required to develop the Crime Coverage Part and the free-standing Crime Policy be streamlined. The new program responds to these comments.
In addition to the forms and endorsement changes ISO has:
1. Introduced a complete restructuring of Division Three of the Commercial Lines Manual in order to accommodate the newly restructured Crime Program forms and endorsements. The new manual division is designed to:
• Introduce new coverage forms and policies for commercial and government entities;
• Incorporate new rules for Employee Theft - Blanket and Schedule, Forgery or Alteration, Clients' Property, Funds Transfer Fraud and other new coverages and endorsements;
• Simplify rating rules and procedures for existing crime coverages; and
• Eliminate references to Coverage Plans.
Due to the extensive nature of the changes associated with this revision, all existing rules are being replaced by the new and revised rules in Division Three - Crime and Fidelity.
2. Introduced a total revision to the Commercial Lines Manual (CLM) Classification Table. The primary purpose is to revise the class table to reflect the change to Crime and Fidelity, and to introduce several classes which have been carried over from the Surety Association of America (SAA) fidelity classification system. Also, the new Classification Table has:
• Replaced all existing Crime class codes with new class codes for Crime and Fidelity.
• Introduced new footnotes for use in conjunction with classification descriptions.
• Deleted Crime footnote that refer to specific coverages that have been replaced.
• Introduced new classifications primarily due to the offering of Fidelity coverage. These classifications are identified in Section III of the Classification Table under “New Classifications”.
3. Introduced new loss costs, along with a new rating basis. One of the most cumbersome rating procedures in the prior Crime manual is the requirement to determine a separate loss cost for each physical location of the risk being rated. Given the large number of current rating territories, which exceeds 150, calculation of the final loss cost for a large risk may be based on 20 to 30 individual locations.
This revision addresses the above situation by aggregating the current rating territories into three tiers, I, II, and III, thus reducing the number of locations to three at most.
Under the prior Crime program, the rating approach used $1,000 of actual exposures as the rating basis. In practice, actual exposures were difficult to determine accurately, especially for money and securities coverage. Under the new program, the $1,000 of amount of insurance (policy limit) will be the rating basis. This change also makes Crime rating more similar to rating of other property lines of business. Examples of changes include:
BURGLARY AND THEFT PROGRAM CHANGES - DEDUCTIBLE PROCEDURE
Under the prior Crime program, deductible credits were provided for retained exposures of $1,000 or less. For retained exposures of over $1,000, the rating procedure charges for the exposures above the retained amount only. This two-level approach added complexity to the rating procedure.
With the conversion of the rating base to $1,000 of the amount of insurance, the deductible procedure was revised to be similar to the Commercial Property deductible program. The new deductible program assumes a $500 base deductible, and provides deductible credits, which vary by the amount of insurance purchased, for deductibles up to $2,000,000.
COMMERCIAL CRIME INSURANCE-LOSS COST CALCULATIONS
Under the prior Crime program, the rating approach for the major coverages consisted of determining a rate group assignment for Coverages Form C or Coverage Form E, selecting multistate rating factors based on this assignment, and multiplying these factors by appropriate territory base loss costs and actual exposures.
Under the new rating rules some coverages will be rated by multiplying a class loss cost by $1,000's of the amount of insurance. Some of the remaining coverages will be rated as a product of a multistate factor and fidelity loss cost, or will employ the same rating rules as the current Crime program.
4. Introduced an experience and schedule rating plan for Crime and Fidelity insurance to complement the introduction of new and revised rules in Division Three -- Crime and Fidelity of the Commercial Lines Manual (CLM). The use of the new plan is optional, and may be applied to any risk that is rated under Division Three of the CLM, subject to a loss cost eligibility threshold for experience rating (there is no loss cost eligibility threshold for schedule rating).
With everything changing when the insurers adopt the new program there will be NO RENEW AS IS!
Copyright 2001 by Professional Insurance Education, Inc.
Used with permission.