What is an Endorsement?
An endorsement is one of the many forms used in the insurance industry. It 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.
Endorsements allow for changes to be made to the original policy after the policy effective date. 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.
Understanding Endorsements
Insurance policy endorsements may serve any number of functions. They are helpful for correcting mistakes or updating policies. Endorsements can broaden the scope of coverage. Or they can limit or restrict the scope of coverage. Endorsements can clarify the application of coverage to some unique loss exposure. They may even add other parties as insureds or add locations to the policy.
What are the different types of insurance endorsements?
There are several types of insurance endorsements. Some examples include:
Additional Premium Endorsements
An additional premium endorsement is filed if there is a change to the policy that increases the coverage and/or premium amount.
Example: An insured has a Business Auto policy written through the non-admitted market and wants to add a vehicle to their policy. An additional premium endorsement is filed to amend the original policy to show the change in coverage and reflect the increase in premium.
Audit Endorsements
An audit endorsement applies to policies written based on projected values, such as, projected sales or payroll. Audit endorsements reflect changes when comparing projected vs. actual values. The carrier may audit the policy on a monthly, quarterly, or annual basis.
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.
Cancellation Endorsements
Cancellation endorsements are filed when a policy is canceled. This may be due to non-payment of premium, material misrepresentation, or at the insured’s request.
Example: An insured has a Business Auto policy through the non-admitted market, but the policyholder goes out of business. The insured may request a cancellation endorsement to cancel the policy.
Reinstatement Endorsement
A reinstatement endorsement is filed to reinstate a policy that has expired without a lapse in coverage.
Example: A carrier writes a cancellation endorsement for non-payment; however, the insured ends up submitting payment within the allowed time frame. A Reinstatement Endorsement may be filed to reinstate the policy.
Return Premium Endorsements
A return premium endorsement is filed if there is a change to the policy that decreases the coverage.
Example: An insured has a Business Auto policy written through the non-admitted market and wants to remove a driver from their policy. A Return Premium Endorsement would be filed to amend the original policy to remove the driver and reflect the change in coverage and decreased premium.
Zero Premium Endorsement
A zero premium endorsement is filed if a change to a policy must be made that does not impact the coverage and/or premiums. This may involve an amendment to the policy number, the policy term (effective and expiration date of the policy), the policy limits, spelling correction of the insured’s name, correction of address, etc.
Example: An insured owns a trucking company with a Business Auto policy written in the non-admitted market. The insured realizes the business address on his policy declaration page is incorrect three months into the policy term. A Zero Premium Endorsement would be filed to correct the insured’s address, backdated to the policy inception date.
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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