What is an insurance endorsement?
Sometimes the terms, scopes, or people involved in an insurance policy need to be changed. Since drafting a new policy would be time-consuming there is a mechanism that allows brokers to ‘correct’ policies.
An insurance endorsement is an amendment or addition to an existing contract. It can change the terms or scope of the original policy. This article is going to focus on Insurance endorsements and how they work.
The most standard form of insurance endorsement is ‘additional insured endorsement,’ in which a policy is broadened to include a third party that wishes to be added to the coverage.
It works to incorporate a necessary addition to an already existing policy without the need to request a new policy and go through the process from scratch.
It is important to understand what your base policy covers as to not generate confusions or misinterpretations.
Endorsements can be added when:
- The policy is issued
- During your policy term
- At the time of renewal
It may increase or decrease your premiums depending on the changes are being made to the policy.
Types of Insurance Endorsements
Types of Insurance Endorsements
- Standard: The standard endorsement is an endorsement that follows what is published by insurance advisory organizations. For example, the American Association of Insurance Services. Standard endorsements are widely used and have been used in many cases analyzed by courts. That makes them the safest bet for insurers because they have previously been ruled upon by a court and set jurisprudence. That way, insurers know how likely it is that the endorsement will be approved or not. An example of this type of endorsement is a change of address to an insured.
- Non-Standard: Non-standard agreements are written by insurers. Non-standard endorsements are often written for purposes that standard endorsements cannot fulfill. Insurers also create endorsements to gain a competitive advantage. Some non-standard endorsements are drafted for a specific policyholder. These are called manuscript endorsements and are designed to be used on a single policy and address a unique situation. Some examples include if you need an addition that has not been previously requested or fits a unique situation, and to restate or amend certain sections of the policy.
- Mandatory: Mandatory endorsements are the ones that a policy holder must have to be in accordance with the law, to follow the industry’s standard, or are mandatory for covering certain types of operations. An example of a mandatory endorsement is the Chapter 2301, on the Texas Insurance Code on Professional Liability Added to Commercial General Liability Policy that states, “If Professional Liability Endorsement is attached to Commercial General Liability Policy, endorsement should match type of coverage of the form (i.e., … occurrence, claims made).”
- Voluntary: Voluntary endorsements are added to a policy voluntarily by either the insured or the insurer. For example, if you are working with a contractor and they request insurance coverage from you for the duration of the project, you can add them as an additional insured on your insurance policy instead of taking out a new one.
What does an Insurance Endorsement do?
Insurance endorsements are typically looked at to:
- Remove coverage: Many endorsements serve as “exclusions,” eliminating coverage for certain types of claims that are perceived as not necessary.
- Adding coverage: The exact opposite of exclusions. Adding coverage is used to widen your basic policy for an additional premium.
- Modifying coverage: Some endorsements modify the scope of coverage rather than adding or removing it.
- Editorial changes: Some endorsements clarify the intent of a policy without altering the coverage.
- Administrative changes: Endorsements may be added for administrative purposes, such as changing the insurer’s mailing address or updating the policyholder’s name.
Benefits of Insurance Endorsements
Insurance endorsements apply to a variety of things in a policy — from additional protection on the policy to a simple amendment with an address change.
The benefits of an insurance endorsement start with the additional insureds skipping the procurement process. This also helps with the cost of premiums and defense as well as disclosing loss history, which could increase premiums.
Endorsements can also be called “riders.” According to the International Risk Management Institute, a rider is “a form that is attached to a surety or fidelity bond that alters the provisions of the bond form in some manner. A rider is the surety and fidelity equivalent of an insurance policy endorsement, and though not common, insurance endorsements are sometimes called riders.”
Adding a rider to a policy costs a little extra but it can translate to greater peace of mind.
Are There Disadvantages to Insurance Endorsements?
Yes. Although the benefits are important and numerous, there are disadvantages to insured endorsements. The main being misconceptions about available coverage. The scope of policies is not always accurately painted and that makes people and businesses think they have coverage in areas that they do not. To understand the true scope of coverage, an additional insured should always stay updated on the reach of the policies.
Moreover, additional insureds can generate conflicting defense positions, especially if they are in dispute over the settlement of a claim. Although the additional insured should not have to pay for its defense costs, the costs may erode the policy limits and leave less money for indemnification.
Handle Insurance Endorsements Easily
Terraclaim is an all-in-one Claim Management software solution. It can help you keep up with all your policies, vendors, and claims in one place. Thanks to its automation capacities, Terraclaim improves productivity on claim management across the board by allowing brokers to schedule and send automated emails, notifications, and reminders. Centralize management and track your performance by adding Terraclaim to your team.