What is an Audit Endorsement?
An endorsement is a form that can change or add to an insurance policy. Audit endorsements apply to policies written based on projected values, such as, projected sales and payroll. An audit endorsement allows the carrier to determine if the original premium was appropriate for the insured’s operations. This endorsement is derived from a survey of the financial records of a person or organization. It is conducted routinely to determine exposures, limits, premiums, and more. Audit endorsements reflect changes when comparing projected vs. actual values. The carrier may audit the policy on a monthly, quarterly, or annual basis.
Understanding Audit Endorsements
For example, an insured owns a trucking company with a Business Auto policy based on freight volume each month. At the end of the policy term, the carrier will conduct an audit requesting the actual freight volume for the insured. Suppose the insured estimated freight volume at policy inception to be $10,000, but at policy expiration, the freight volume was $15,000. In that case, the carrier will issue an Audit Endorsement based on additional volume in order to collect the additional premium owed. If actuals are less than anticipated, a Return Premium Endorsement may be issued.
Tips for Managing Insurance Endorsements
The process for filing insurance endorsements varies from state to state, as each state maintains its own requirements. Since filing requirements for endorsements vary so much, it is important to verify what information will be required in the state in which you are filing the endorsement.
Most endorsements will include:
- Policy number
- Name of Insured
- Endorsement Type
- Effective Date of Change
- Premium Amounts (Additional or Return)
- Surplus Lines Tax (Additional or Return)
- State Stamping Fees (Additional or Return)
There’s a lot to keep track of when filing insurance endorsements, and for nearly every “rule,” there seems to be a state with an exception. With the many nuances, managing insurance endorsements can seem like an overwhelming task.
InsCipher offers products and services to simplify the surplus lines filing and reporting process, including managing endorsements. Our flagship product, InsCipher Connect™, offers intuitive features for managing endorsements without the headache or risk of non-compliance and late fees.
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