What Are Policy Forms?

How To Read a Car Insurance Policy

In Part 1 we learned that what are called 'Policy Forms' are not quite what we commonly understand forms to be: They are not fill-in forms like a job application or a tax return. Instead, insurance policy forms are pre-printed, boilerplate documents that spell out all the terms and conditions of the insurance contract. Some are only a single page long while others are several.

A form may cover the details of one coverage (Uninsured Motorists, for example) or several. It usually takes many forms bundled together to make up a single insurance policy, and the exact forms used vary from person to person, depending on what coverages one person has chosen versus another.

Whats in a Name?

As we saw in Part 1, policy forms have names that usually are strings of several letters and numbers. They look intimidating but often break down easily into understandable bits. For starters, the last four digits of the form number are usually the revision month and year, so 'PP00010698' is the form 'PP0001' with a revision date of June, 1998. Further, the 'PP' is secret insurance code for 'Private Passenger', which tells us the form belongs in personal auto policies. We're left with '0001' which is the core, unique form number. In this case, 'PP00010698' is the June, 1998 revision of the Personal Auto Policy form (the basis - the real meat - of all auto insurance contracts). We will be reviewing that specific form - and going over many more fun facts about insurance forms - in the next article.

The Problem: Lots of Forms in Lots of Jurisdictions

Car insurance for privately-owned vehicles is a regulated industry. Not only is it regulated... its regulated by the individual U.S. states. As such, the regulations in California versus Kansas, while similar, are not identical. Thus you need policy language in Kansas that you don't in California and vice versa. Additionally, one state's regulators may make unique updates to their regulations over time.

Changes in insurance regulations will require updates to individual forms for a particular state. Since roughly a dozen forms make up a typical insurance policy - and each state's regulators have to review and approve any forms changes a company may make - the result is a real headache for the company that tries to keep up with all the changes.

The Solution: The ISO Standard

To help solve this problem, the insurance industry has ISO - not the ISO most people are familiar with - This ISO is an acronym for Insurance Services Office, and thats the one we mean from now on. Among other things, ISO keeps up to date with all regulations and forms changes, and produces policy forms that are properly compliant with a given state's insurance regulations - so long as you are using the current form edition.

The fact that these forms are immediately usable is very important. The use of ISO forms means a given insurance company doesn't have to re-request regulatory approval for their forms every time there is an update. Sounds perfect, right?

Not a Perfect World

Unfortunately, generic ISO forms don't always do the job a given company needs. What if, for example, a company wants to offer nationwide roadside assistance rather than simple towing coverage? There's no generic form for that, so the company will have to create one. Further, what if a company wants to remove a few restrictions, or add new ones, to the policy? They have to either rewrite the form so its to their liking, maintaining most of the ISO language but not all of it, OR create an entirely new form that amends sections of the standard form (yes, the subject is getting complicated).

In the real world, many companies use a mixture of both generic ISO forms and their own, specialized 'manuscript' forms. These company-designed forms are subject to regulatory approval prior to their use. Securing this approval can sometimes mean a considerable delay and a lot of effort.

From The Ground Up ...

So now we know that getting approval for forms that only deviate a little from the ISO standard can be a headache. Now consider that some companies - typically only the largest - write their own policy forms from scratch. They don't use the ISO standard at all. An insurance company has to really want a custom contract bad to go thru that sort of wringer. Why would a company put themselves through such enormous effort?

There is no easy answer, but while ISO forms and their language are an industry-wide known quantity, completely custom forms are the opposite. We have reviewed many such policies here over the years and have found some real jewels hiding inside that were either missed by regulators, or allowed to go through despite theor implications. One example of what we came across, and what a consumer went through as a result, is here.

The moral of this portion of the story is to know that the closer your insurance policy is to the ISO standard, the less chance that there is an ugly surprise hiding inside. You need to get out your magnifying glass, brew up some coffee and prepare yourself for a long read. Its hard to say whats in there until you go through it all.

In our next article, now that we have explained what forms are, we will start reading some and trying to figure out what they are trying to tell us. We'll start with the Personal Auto Policy form, whose generic form is found here.

Article by
Matt Robertson

Matt is the Managing Partner at Leland-West Insurance Brokers, Inc. He started with the firm while still a college student, way back in 1984. According to Matt his only remaining hobby is Motorsport ... because its all he can afford ("will work for tires"). Reach him at matt@lelandwest.com