Commissioner of Insurance

BULLETIN 1998-12

To: All Property and Casualty Insurance Companies Licensed in Kansas

Subject: Year 2000 Exclusion Endorsements

Date: September 23, 1998

The following rules will apply to the use of the ISO Year 2000 Coverage Endorsements approved by this Department and any such liability exclusion endorsements filed by companies or other rating organizations:

1. Liability exclusion endorsements may not be used on a blanket basis; each risk must be individually underwritten. Such endorsements should not be used where the insured has demonstrated compliance with Y2K criteria.
2. Companies must fully disclose, in writing, to insureds and agents use of such endorsements.
3. The Department recommends companies and agents obtain consent of the insured before renewing any policy using the endorsement. The Department requires companies provide notice to the insured and agent of record at least 60 days in advance of such renewals.
4. Such endorsements may not be used on personal lines policies, except for incidental business exposures in a homeowner policy, farmowner policies, and personal umbrella policies with unique exposures. In each case, the company may use the endorsement only after individually underwriting and documenting in its underwriting files the reasons for applying the endorsement in that instance.
5. The Commissioner strongly urges companies using Y2K exclusion endorsements to offer its insureds the opportunity to buy limited coverage for this exposure for a reasonable additional premium. Companies offering "buy back" coverages must file the rate or premium charge for the coverage with the Department in accordance with K.S.A. 40-955. If companies do not voluntarily provide these buy backs and significant numbers of Kansans are unable to insure this exposure, the Commissioner may discuss with the Legislature appropriate legislation to protect our citizens.

The Department will closely monitor the industry’s use of this endorsement, to include use of market conduct exams in appropriate cases. Examples of inappropriate activity, which the Department believes would violate the Kansas Unfair Trade Practices Act or rating laws are: using these endorsements on a blanket basis without individual underwriting to insure they are used only on risks that warrant; canceling or non-renewing policies, as a general business practice, due to Y2K problems; increased consumer complaints prompted by company actions based on Y2K concerns; and, excessive use of Y2K endorsements or arbitrary underwriting actions based on Y2K concerns that cause disruptions in the marketplace. The Department is particularly concerned that companies take appropriate steps to educate insureds and agents about the Y2K problem, what the company is covering or excluding in that regard and the steps an insured can take to insure against or prevent losses due to Y2K problems.

The Department will monitor in particular whether companies offer "buy backs" of limited Y2K coverage. Widespread unavailability of this coverage may prompt the Commissioner to take further action. The use of excessive premiums or other tactics designed to discourage purchase of this coverage will prompt a market conduct exam and department action, if appropriate.

The Department is concerned exclusions and coverage options offered to insureds be consistent and will review closely any filing of exclusions similar to the ISO endorsement or member company exceptions from the approved ISO endorsement. Those filings will be reviewed closely to be sure exclusions or "buy backs" do not vary significantly from "standard" advisory or rating organization filings. To encourage consistency, it is our intent to use the ISO endorsements as the benchmark or standard. While no company or rating organization is expected or required to adopt or incorporate the ISO filing into its filing, such filings will be reviewed to determine whether the exclusion is broader than the ISO filing, which will be discouraged, or whether the exclusion is narrower, which will be favored.

If you have any questions in this regard, please contact the Fire and Casualty Division at 785-296-7844.