The insurance policy at the center of massive antitrust lawsuits against the insurance industry never gained much popularity among insurance buyers.

Even though the industry won approval for the sharply restricted coverage on the so-called claims-made policy, few risk managers, those who buy insurance for their companies, bought the policies.As much as they tried to jam it down our throats, the sophisticated risk manager knew it wasn't any good, said Cheri Hawkins, assistant director of insurance at Weyerhaueser Co. in Tacoma, Wash. It was just as bad as no coverage.

The risk manager was right in being reluctant to accept this, she added.

The claims-made form was introduced in 1984 by the Insurance Services Office Inc., an industry-owned rating and data bureau, as a way to lessen the unpredictability and expense of long-term risks.

ISO recommends standard policy forms for its 1,400 member companies, which write about 95 percent of all the casualty insurance in the United States.

Claims-made coverage obligates the insurer to pay only if the claim is filed during the policy period.

The occurrence form covers losses, whenever claimed, that happen during the policy period. The policy covering the company at the time of the loss pays the claim, even if the policy expired.

Both forms were options under ISO's recommended commercial general liability policy forms. The claims-made form, amended in 1986, added a retroactive date provision and excluded pollution liability, further limiting coverage.

Attorneys general in nine states filed lawsuits in March accusing dozens of U.S. and British insurers, reinsurers, brokers and trade associations, including ISO, of major violations of the antitrust laws.

The suits accuse the companies of agreeing to restrict coverage through the claims-made policy and using their market power to coerce the change to the new policy.

The complaints also allege that the insurers manipulated the market to create the so-called liability insurance crisis of the mid-1980s.

Market Penetration

Surveys conducted by the Risk and Insurance Management Society, a New York- based trade association of insurance buyers, reveal that not many risk managers bought the claims-made policy.

I don't think the penetration of the claims-made policy was as much as the industry had hoped, said Ronald Stasch, corporate risk manager at Detroit- based Federal-Mogul Corp.

In 1985, only 7 percent of the risk managers surveyed by RIMS bought the claims-made policy for their primary coverage. In 1986, 14 percent bought claims-made policies, and in 1987 only 12 percent bought the coverage.

For excess types of coverage, such as for catastrophic exposures, 17 percent of the risk managers polled used claims-made policies, compared with 33 percent in 1986 and 27 percent in 1987.

They tried to apply it across the board to all lines and they weren't successful, said Richard Heydinger, risk management director at Hallmark Cards Inc., based in Kansas City, Mo.

Little Cost Savings

Even though the claims-made policies offer substantially reduced coverage, risk managers said they cost nearly as much as occurrence coverage.

We found that claims-made didn't really offer any financial savings, said Donald Urbanciz, senior vice president at Rollins Burdick Hunter Co., a Chicago-based insurance broker.

He added that the difference was only 5 percent to 10 percent lower. We saw no pricing differential. It defied rationality.

Bill Mather, administrator of risk management at Boston-based Gillette Co., said: Despite the forecasts that claims-made ought to be cheaper, we certainly didn't see that.

Mr. Stasch said the original occurrence form was significantly underpriced and added that he saw no noticeable, substantial savings in the claims-made form.

A 1986 study conducted by the federal government's General Accounting Office concluded that any premium savings to insureds are temporary and somewhat illusory.

Quality of the Policies

risk managers also complain about the quality of the claims-made policy, contending that the reduced coverage gave them little peace of mind for long- term risks and left them with potentially damaging gaps in coverage.

This shifted all the risk back to the buyers, Hallmark's Mr. Heydinger said, adding that he considered the form certainly unacceptable.

Mr. Urbanciz of Rollins Burdick said: At least with the occurrence form we had confidence that there would be some coverage there.

Ms. Hawkins of Weyerhaueser said the claims-made form had its place but not for everything. She said the claims-made policy may be necessary for certain long-tail types of insurance, but not for general liability risks.

The GAO study also stated, It is also evident that insurance buyers will shoulder greater responsibility for risk and the management of risk. Businesses will have to become more knowledgeable about the options and combinations of coverage appropriate for their needs.

Claims-made policies have been used for many years by the industry for professional liability types of insurance, such as for directors and officers, medical malpractice and errors and omissions.

Directors and officers insurance protects top company executives from lawsuits brought by shareholders. Errors and omissions insurance covers a company for claims stemming from mistakes and oversights.

But in the mid-1980s, insurers began to clamor for the claims-made policy for general liability risks as the costs of paying long-tail exposures rose. Long-tail risks include pollution or product liability hazards that normally don't become known for many years.

It was a combination of the hard market and (the fact) that we had underwriters who were concerned about product liability, Mr. Mather said. I think they were concerned about stacking of limits under occurrence policies and the problems with latent disease claims they were getting into.

Joann Koster, vice president, major accounts, at New York-based American Reinsurance Co., a provider of insurance to insurance companies, said companies that bought the claims-made policies not only saw little cost savings, but also had problems getting coverage for excess layers of insurance. You'll either pay for it in the primary or in the excess, she said.

Weyerhaueser's Ms. Hawkins said her company, a forest products company, suffered coverage gaps. We had gaps in coverage the first year the market hardened, she said. But we subsequently filled those gaps.

Since the claims-made policy was introduced, the market has softened, bringing with it increased availability and lower costs. Insurers are more willing to offer occurrence coverage but still may be wary of companies that have coverage gaps.

As you remain on claims-made, it gets harder to get the retroactive coverage, Mr. Urbanciz, the broker with Rollins Burdick, said.

Experiences with Claims-Made

Mr. Stasch of Federal-Mogul said his company, a manufacturer of precision component parts, did not buy claims-made policies. We took the position that

because the claims-made form seemed to be so lacking, we would have preferred to go bare, he said.

We were able to find the standard occurrence forms, Mr. Stasch said, but I think they would have been happy to sell us the claims-made form.

Ms. Hawkins said, We looked all over the market. Finally we went into captive facilities and to London, and we were able to successfully get the occurrence form.

All the Fortune 500 companies had some problem getting the occurrence form, she said, but added that her company had potential problems for long- term pollution risks, which made finding occurrence coverage harder.

Gillette is insured under the claims-made form, but is considering switching back to the occurrence form. We have not changed our program, Mr. Mather said. We're looking at it.

I think our principal concern is where we will go in the future of the claims-made form, he added.

Hallmark's Mr. Heydinger said his company didn't find it necessary to switch. We were able to buy occurrence but with lower limits.

We considered claims-made too inferior to even consider, he said.

But insurers, he said, tried to impose claims-made in a lot of situations.

It was 'take or leave it', he said. For many it was the only option available.