A quick guide to understanding surplus lines forms

There are plenty of forms to navigate in the surplus lines industry. And keeping track of them can get confusing. That’s why we’ve created this quick guide to understanding surplus lines forms. This article will discuss a few of the forms used in surplus lines and their purpose.

Affidavits

An affidavit is a written statement of facts signed by the agent and/or insured. Affidavits are notarized. This means they are approved by a notary public or other public official appointed by a state government. These individuals have the authority to witness the signing of important documents and verify the identity of those signing it.

Affidavits are often required by the state. They help to minimize fraud and ensure the truth of the information listed on a document. They can summarize the effort made to find coverage with an admitted insured (diligent search). They can also describe the risks associated with SL/Non-Admitted carriers.

Binders

A binder is a legal agreement issued by either an agent or an insurer to provide temporary evidence of insurance until a policy can be issued. Binders should contain definite time limits. They should be in writing. And binders should clearly designate the insurer with which the risk is bound.

Binders are helpful because they allow you to have proof of coverage during certain waiting periods. For example, having proof of coverage while waiting for your new insurance policy to arrive in the mail. Binders allow you to show proof of coverage to a lender while waiting for a new policy to start.

A binder is similar to a declarations page, however, it is not the same. A binder is a brief legal agreement to provide temporary evidence of insurance until a policy can be issued. Binders typically last 30-90 days. A declarations page usually lasts the entire term of a policy.

Declarations Page

A declaration page is the front page(s) of a policy. It specifies the named insured, address, policy period, location of premises, policy limits, and other key information that varies from insured to insured. The declarations page is also known as the information page. It is often informally referred to as the “dec” or “dec page.”

A declaration page is a useful resource that allows you to access quick, up-to-date information. When changes are made during a policy term, this page is updated. Then the insured receives a revised copy.

A declarations page can also act as proof of insurance. This is because the declarations page includes several important details about your insurance policy, such as your name, address, limits, and policy endorsements.

Diligent Search

A diligent search is surplus lines regulatory requirement. It establishes that coverage for a risk is unavailable from admitted insurers. The policy seeker must submit an affidavit confirming that an admitted carrier declined the risk. Diligent search is also known as diligent effort.

Surplus lines brokers are generally required to verify that a diligent effort was made to place the policy in the admitted market before a risk is placed in the surplus lines market. This standard exists to incentivize using the admitted market. In the admitted market, taxes are lower. Policy form is more competitive. Consumers have the right to appeal to the state if policies have been handled improperly. 

However, the general trend over the history of surplus lines regulation has been to lessen the regulatory burden caused by diligent search. There are currently many exemptions from the diligent search. However, they are not consistent from state to state, with the exception of the federal exemption in the NRRA. There are several states who have dropped the standard altogether and no longer require diligent search.

Endorsement

An endorsement is an insurance policy form that either changes or adds to the provisions included in one or more other forms used to construct the policy. Insurance policy endorsements may serve any number of functions. They can broaden the scope of coverage. They can limit or restrict the scope of coverage. Endorsements can clarify the application of coverage to some unique loss exposure. They may add other parties as insureds or add locations to the policy.

An insurance endorsement is any change to the original policy made after the policy effective date. They are helpful for correcting mistakes or updating policies.

If necessary, endorsements may be backdated. For instance, if a policy was written with an effective date of January 1, but on January 27, it was realized that the insured’s name was misspelled, a Zero Premium Endorsement backdated to January 1 may be issued to correct the mistake.

Policy

An insurance policy is a written contract of insurance between the insurer and the policyholder. It is typically composed of a declarations page, policy form, and endorsements or riders that amend the policy form.

Insurance policies act as a safeguard against accidental but anticipated risks. Insurance policies allow businesses and individuals to navigate potential risks without the threat of financial ruin.

We see how a policy allows the policy holder to receive financial assistance for or protection from certain types of losses. The contract outlined in the policy determines the claims that the insurer is legally required to pay. 

There are several types of insurance policies. Some examples include health, home, life, and car.

Conclusion

These are just a few of the forms used in the surplus lines industry. Surplus lines have several moving pieces. If you’d like more help understanding surplus lines forms or the industry in depth, read our blog about Players in the Surplus Lines Insurance Industry.

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