Insurance endorsements apply to both the admitted and non-admitted (Excess and Surplus Lines) markets. In the admitted market, the carrier is the regulated entity. On the non-admitted side, the surplus lines broker is the regulated entity. This article will review insurance endorsements in the excess and surplus lines market—what an insurance endorsement is, what types of endorsements exist, how to file an endorsement and more.
What is an insurance endorsement?
An insurance endorsement is any change to the original policy made 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.
What are the different types of insurance endorsements?
There are different types of insurance endorsements within the excess and surplus lines industry, including:
Additional Premium Endorsements – 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.
Return Premium Endorsements – 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.
Cancellation Endorsements – filed when a policy is canceled, 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.
Audit Endorsements – applies to policies written based on projected values, i.e., projected sales, payroll, etc. 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.
Zero Premium Endorsement - 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.
Reinstatement Endorsement – 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.
How do I file an insurance endorsement?
The process for filing insurance endorsements varies from state to state, as each state maintains its own requirements.
Regarding premium endorsements, in certain states, like Colorado, Texas, and Indiana, you only have to report the endorsement information—you don't have to send an actual copy of the endorsement to the state.
Other states, like Utah, Idaho, and Mississippi, require a copy of the endorsement to be filed. Depending on the state, the endorsement may be filed with either the Surplus Lines Stamping Office or the Department of Insurance, using the same state filing platform the policy was initially filed. For instance, you would submit this information using the InsCipher State Broker Portal in Utah and Idaho. In Mississippi, you would use the Surplus Lines Information Portal (SLIP).
Some states, like Missouri and Arizona, will impose penalties for filing an endorsement after the endorsement effective date. The state filing requirements determine the time period deemed as late. Other states, like North Dakota and Texas, will allow you to use the issue date or invoice date of the endorsement.
What Information is required to file an insurance endorsement?
Because filing requirements for endorsements vary widely from state to state, it is important to verify what information will be required in the state in which you are filing the endorsement.
Most endorsements will include:
-Name of Insured
-Effective Date of Change
-Premium Amounts (Additional or Return)
-Surplus Lines Tax (Additional or Return)
-State Stamping Fees (Additional or Return)
Indiana will also require additional information such as the NAIC Carrier number of the non-admitted carrier the business was placed through or proof of declination from the original new or renewal policy when it was filed.
Tools for managing insurance endorsements
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.
Efficient Policy Management: When you upload a policy into InsCipher Connect, it creates a record for that insured. When filing an endorsement on any given policy, simply search for the insured by name and/or policy number within our platform. All information from the original policy will be pulled up and pre-populated as you add the endorsement information. The endorsement will be automatically linked to the original policy.
Required Document Templates: While most states do not require state disclosure wording on the policy endorsement, others do. If a state disclosure wording is required, InsCipher Connect will alert you to this requirement and even provide a template of the state-specific wording.
Up-to-Date Tax & Fee Rates: States change tax rates and fees frequently, and again, the rates and fees vary from state to state. Trying to research and manage these changes for all 50 states can be a monumental task. InsCipher Connect does this for you. We have a dedicated compliance team ensuring up-to-date information for all 50 states, plus Guam, Puerto Rico, and the U.S. Virgin Isles. Having current tax rates and fees is especially important in the case of endorsements, as these are often caught in the crossfire of changes that take place after the original policy effective date. In such situations, which rates should apply?
Say, for example, a written policy has an effective date of 1/21. On 2/7, the tax rate increases. Several weeks later, an endorsement is written and needs to be filed—but which rate is charged? The tax rate of the original policy effective date or the new rate implemented on 2/7? With InsCipher Connect™, you don't have to wonder or spend time researching the answer. Our system will automatically input the correct rates based on how that particular state handles such changes.
Batch Filing Capabilities: InsCipher Connect™ offers batch filing capabilities in many states, and this capability extends to insurance endorsements. In states that allow batch filing, you can quickly submit multiple policy endorsements within a singular transaction—a significant time-saving!
While managing endorsements in the excess and surplus lines sector can be confusing, it doesn't have to be. With more than 20 years of compliance experience, the team at InsCipher is here to answer any questions you may have.
InsCipher is an insurtech company providing software and services that are revolutionizing inefficient insurance processes. Save your agency time and money by automating surplus lines compliance, filing, and reporting. Want to learn more? Request a free demo today!