Commercial Lines Deregulation: E&O Friendly?

by Curtis Pearsall

It's evident that many state legislatures are taking up the issue of Commercial Lines deregulation. There are many benefits to deregulation, and the consumer is likely to benefit. But that's a subject for someone else to address. What I'd like to comment on is the issue of how Commercial Lines deregulation affects the insurance agent involved in the transaction.

An accurate determination of this impact requires a review of the specific deregulation bill that may be pending in your state. The majority of state bills present minimal problems, if any-but some provisions in some bills should cause concern.

Many in the insurance industry see Commercial Lines deregulation as a means of adding some flexibility in the coverages that can be offered to large Commercial risks and a means of bringing premium dollars back to the state. The term 'large' varies by state, with $100,000 revenues being common in the past and $25,000 as a desired level these days. These accounts were thought to possess a greater degree of insurance sophistication than smaller Commercial accounts.

However, at least one state has proposed a bill with no minimum premium level. This would allow any Commercial account (even a $350 Businessowners policy) to fall under the Commercial Lines deregulation. Let me ask you: Do these policyholders possess the insurance sophistication to understand customized policy wording? I'm concerned that inappropriate forms would be used on susceptible buyers.

Also, in some states, deregulation applies to a host of additional form and other statutory requirements. One such issue is the number of days required for nonrenewal or cancellation. The provision might allow companies to drop accounts without following statutory requirements-perhaps with a minimal number of days' notice. This could cause serious E&O problems if you can't get the coverage replaced in time.

Another provision appearing in some of the bills would allow the state department to withdraw approval of the form for certain conditions. Although this appears to be primarily a company issue, the agent could be faced with problems that they're not directly involved in. For example, the department could withdraw a form on the finding that the form is contrary to public policy. (Previously, the department could take this action only when the form was found to be in violation of applicable legal requirements.) Situations certainly exist in which a form could be in conflict with current public policy while not violating any existing legal provisions. This new authority by the department could cause significant problems from the company perspective. As an agent for that company, you may have to do a lot of damage control with your customers.

Overall, I strongly believe that Commercial Lines deregulation is a good thing if structured properly. If your state has or is considering deregulation, investigate all of the bill's provisions-and how your agency (and companies) would be affected. Get involved with your agents' association to shape an insurance industry that's good for you, your customers, and your companies.