AAIS Develops Endorsements Covering Expenses of Identity Fraud Victims

Insurers nationwide will soon have standard forms for offering coverage for the expenses their policyholders incur if they become victims of the growing crime of “identity fraud.”

The American Association of Insurance Services (AAIS) is preparing to file “Identity Fraud Expense Coverage” endorsements, rules, and rating information under the AAIS Farmowners, Homeowners, and Mobile-Homeowners Programs. The filings carry a proposed effective date of March 1, 2003. Equivalent endorsements will be made available to non-AAIS companies for filing on their own.

The new AAIS identity fraud endorsements cover expenses, including lost earnings, incurred by individuals as they spend time and money rectifying personal records after being victimized by identity thieves. The covered expenses include costs for producing, notarizing, and distributing documents; telephone charges; research fees; loan reapplication fees; and attorneys fees. Lost earnings are covered up to $250 a day per insured or $5,000 total.

Coverage is triggered by an occurrence of identity fraud that is discovered during the policy period or up to one year after the policy terminates. If the insured purchases replacement identity fraud expense coverage, the extended discovery period terminates when the new coverage takes effect.

Coverage is excluded for any identity fraud discovered before the policy period. Identity fraud suffered by a business of the insured is also excluded, as is identity fraud committed by an insured or someone working on their behalf.

The AAIS endorsements establish a separate Identity Fraud Expense Coverage sublimit of at least $5,000. Loss cost rating information is provided for limits of $5,000 to $30,000 (in increments of $5,000); an additional charge is provided for each $5,000 in coverage beyond $30,000.

With the AAIS endorsements, all property/casualty insurers will have access to standardized forms for covering a personal exposure that, to date, has been insured by a few companies using proprietary forms.