Liability Insurance:

Changes in Policies Set Limits on Risks to Insurers

HRD-87-18BR: Published: Nov 21, 1986. Publicly Released: Dec 22, 1986.

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In response to a congressional request, GAO provided a description of the recent major changes in policies and practices in the commercial general liability (CGL) insurance field.

GAO found that, during the past year, many businesses and public entities have experienced problems both in finding adequate and affordable CGL insurance coverage. GAO identified three major changes in CGL policies: (1) the introduction of the claims-made policy as an alternative to the traditional occurrence-based policy; (2) aggregate dollar limits on all coverage; and (3) the broadened scope of the pollution coverage exclusion. The insurance industry reported that the substantial rate increases or withdrawals from certain lines were essential to: (1) maintain a reasonable margin of profitability; and (2) counter long-standing problems in predicting the level of financial liability for assumed risks. As a result of these changes, businesses will have to become more knowledgeable about the options and combinations of coverage appropriate for their needs. However, the actual effects of the changes on claimants' ability to recover losses cannot be measured until insureds have set patterns of CGL coverage and sufficient time has elapsed to allow for examination of data on both short-term and long-term claims.

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