Endorsement

What is an endorsement?

Insurance companies don’t write insurance contracts from scratch for each of their customers. Instead, insurers use standard policy wordings, and they only need to adjust details from customer to customer.

Details like limits of coverage are certainly different in each policy, but the bulk of an insurance contract is “off the shelf.”

Here’s why endorsements exist:

When an insured has a need that isn’t covered by standard policy wordings, insurance companies can still accommodate them. The insurance company adds an endorsement to the policy that overrides the standard policy wordings.

An endorsement overrides anything it needs to in the standard policy wordings, to provide the desired level of coverage.

Insurance companies use endorsements for much more than just adjusting coverage limits, however. Here are a few other common uses of endorsements:

• Adding or excluding covered perils. Many home insurers exclude earthquake coverage in their standard policies. They may allow insureds to add earthquake coverage to their policy with an endorsement. On the flip side, an insurer may include flood coverage by default, but use an endorsement to remove that coverage from a home sitting on a floodplain.

• Enforcing different deductibles. An insurer can add an endorsement that changes the deductible for certain losses. For example, a policy with a standard deductible of $500 may have an endorsement that enforces a $10,000 deductible on water damage claims caused by faulty plumbing. An insurer may use such an endorsement if they know a home’s plumbing system is old and likely to fail, but they’re still willing to insure the home. They’ll usually ask the insured to upgrade their plumbing system before they can remove the endorsement.

• Changing policy details. If the information within a policy document needs to be changed before the annual renewal, the insurer can make the change using an endorsement. For example, if the occupancy of the home changes.

• Insuring a home-based business. Home insurers can insure property used for certain home-based businesses that meet their guidelines. But first, insureds need to request an endorsement that includes their business property.

Usually, the insured requests that their insurance company add an endorsement to their policy. Sometimes, though, the insurer adds endorsements of their own, which are not optional.

As in the example above, where an insurer adds a $10,000 deductible for claims arising from burst pipes, sometimes insurers enforce higher deductibles or lower limits than what their standard policy offers.

These types of endorsements aren’t optional; if the insured wants the policy, they must accept the terms. Mandatory endorsements of this nature aren’t common, however.

What is the difference between an endorsement and a rider?

Endorsements are also known as riders. Rider and endorsement are the same thing; they both refer to changes made to an insurance contract. Floater is another term you’ll sometimes hear, which also means roughly the same thing. You’ll often hear these terms used interchangeably.

In general, endorsements are used to expand or restrict coverage for certain types of loss. For example, a sewer backup endorsement adds coverage for losses caused by sewer backups to a policy that otherwise wouldn’t cover them.

Meanwhile, riders and floaters are used to add certain types of property to the policy. For example, a jewellery rider adds coverage for individual pieces of jewellery that might not have enough coverage under the standard policy. Or, a watercraft floater would add coverage for individual boats.

Car insurance endorsements

Endorsements are very common when it comes to car insurance. Car insurance endorsements are fairly straightforward; since car insurance is heavily regulated, most endorsements are off-the-shelf add-ons.

For example, drivers in Ontario may be familiar with the endorsements available in that province. These are also known as Ontario Policy Change Forms, or OPCF for short. Each endorsement is designated OPCF (number). OPCF 27, for example, is an endorsement that extends coverage to rental cars or other vehicles the policyholder doesn’t own. Alberta uses a similar system, with available endorsements known as Standard Endorsement Forms (SEF).

Some car insurance endorsements are actually mandatory in some situations. That includes endorsements like OPCF 5 in Ontario, which is required for any driver leasing their car.

How do home insurance endorsements work with Square One?

Square One handles many common endorsements differently from other home insurance providers, so we’ll take a minute to explain here:

Homeowners often ask their insurer to add endorsements that cover their specialty property, like jewellery or watercraft. Most standard policies have just small limits for these types of items, so anyone who needs more coverage must ask for an endorsement.

Square One makes it easy for our customers to personalize their policies. Instead of issuing endorsements for speciality property, we let insureds choose which types of speciality property they want to insure and for how much. Those choices happen within the application, so they’re reflected in the policy wordings.

We also include earthquake and overland flood coverage in most of our policies by default, so there’s no need for most insureds to add these coverages via endorsement.

In Square One’s case, we use what’s called limited depreciation. If an insured chooses not to replace their lost or damaged stuff, we can often provide them with a limited depreciation settlement. That means we’ll deduct no more than 50% of an item’s replacement cost for depreciation. That often means a greater payout than other policies that always apply full depreciation.

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