Boiler Plate or Cookie Cutter
There are 2 theoretical questions which have yet to be solve. The first is how man angels can fit on the head of a pin? The other question is, “are modern commercial insurance policies boilerplate or cookie cutter?”
I have your attention now! To answer this question, I needed to do considerable research into exactly what the definition of each term is. Turning first to the term boilerplate, the Merriam-Webster Dictionary defines the term boilerplate as “standardized text.” As I think about the definition, I can see some aspects applying to the modern-day commercial insurance policy. It is entirely true the industry relies on standard forms from ISO, AAIS and NCCI to construct insurance policies. For example, it is hard to imagine a liability policy to be constructed without the use of CG 00 01 (or CG 00 02 for claims-made). In addition, all the endorsement are standardized as well. In that sense, a logical case could be made that today’s commercial insurance product is boilerplate.
Turning to the term “cookie cutter.” Our dear friends at Merriam-Webster provide us with the definition as, marked by lack of originality or distinction.” As we apply this definition to the commercial insurance industry, I see there are segments which fall within this category. Businessowners Policies are the classic example. The rating algorithms are slot rated. Coverage is standard providing almost identical coverage for any eligible business with the only variation being the property limit on which the policy is rated.
Furthermore, some carriers have developed standardized supplemental coverage forms for certain industries to be included on almost any risk falling within the classification. These supplemental coverage forms basically bundle a list of ancillary ISO endorsements either as a single coverage endorsement or automatically adding the endorsements and usually for a specified percentage of the premium. As a side note, they are not always cost-effective as many of the individual endorsements do not carry a premium charge so the client may be incurring a 5% to 10% surcharge for coverages which may not cost anything if added singularly. The classic example would be Liberty Mutual’s “Custom Protector” program.
Based on the definitions, both terms (boilerplate & cookie cutter) would apply to the commercial insurance industry. However, I believe there is a better term. I think the term modular is a better descriptor.
The genesis of the current ISO forms dates to 1983. I remember when they were first being released and reviewed by the stakeholders, they were called ISO – Simplified Forms. For those of you who are relatively new to the industry the nomenclature may seem a bit humorous. But compared to the forms they were replacing; they were much simpler. But the simplification is how coverage is structured rather than the actual wording of the forms.
The prior forms and the rating algorithms used to develop premium were much more complicated. If I had to use a word to describe the forms, I would borrow the term ala carte from the hospitality industry. Every policy had to be individually designed by adding an assortment of available coverage forms to create the final insurance policy.
The prior forms were developed under individual silos with little consideration made to coordinate with other insurance policies. For instance, the general liability coverage wording did not coordinate with commercial auto policies or workers’ compensation policies. The net result was potential coverage gaps, which increased the need for manuscript forms. The result of increased reliance upon manuscript forms reduced standardization of coverage within the insurance industry opening potential for uncovered losses and errors and omissions claims.
As ISO developed the 1983 “Simplified” form, they strove to develop broad comprehensive coverage forms that dove tailed with companion forms to prevent coverage gaps and errors. In addition, they wanted coverage forms that could easily be amended to adapt to changing conditions. For the most part they were successful in achieving those goals.
Perhaps the most important concept to understand about ISO coverage forms is that the forms are very modular in nature. In theory, you could pull one carrier out of an insurance program and plug a different carrier and the coverage would not vary. The new carrier’s coverage should fit into the insurance program just as well as the prior carrier and not precipitate coverage gaps. That is of course assuming the new carrier did not want to slap on new exclusions.
Furthermore, within each coverage silo, whether it be general liability, commercial property, or commercial auto, ISO has designed their endorsements and forms to easily customize their coverage to adapt to virtually any insured’s operations. You want a specific limit for a job? There is a form for that. You cannot cover that exposure? There is a form for that.
I worked with the 1983 form and its variations, iterations, and adaptations for 40 years. I can honestly say I do not think I ever saw a situation where I could not use ISO’s suite of forms to adapt or modify cover to meet my needs as an underwriter or the client’s needs. In that sense, I believe the best way to describe the current commercial insurance policies is modular. With a strong sense and knowledge of the forms a good insurance professional can devise a comprehensive insurance program for almost any commercial venture.