What is an Insurance Binder?

Insurance Binder: What is it?

An insurance binder is a temporary insurance policy that covers the insured while they wait for the issuance of their formal policy. Insurance carriers issue insurance binders to bridge the gap between binding and final approval as they finalize their diligence and formally approve the longer-term coverage.

The insurance binder is a physical legal document that specifies all incidents for which the policyholder is covered. The binder documentation also serves as proof of insurance during this intermediate period and may sometimes be referred to as a title binder or interim binder.

When Do You Need an Insurance Binder?

There are several instances in which an insurance binder can be useful to cover the gap between approval and policy issuance. For example, an aftermarket auto equipment manufacturer may need a valid cyber insurance policy in order to sell their products to the Federal Government. The manufacturer’s cyber insurance policy should be effective by the date of sale and so an insurance binder may be needed if the permanent policy has yet to be issued. In the case of a binder, the temporary coverage ensures that the government’s cyber safety requirements are met should the manufacturer sustain a data breach or cyber attack.

What to Expect in an Insurance Binder

Insurance binders should identify who and what are insured. Specifically, the documentation should include the following information:

• Insurance binder holder and/or named insured
• Insurance company and agent contact information
• Binder number
• The asset or risk insured
• Coverages and coverage limits
• Deductibles
• Endorsements
• Premium, or any required payments and fees
• Binder term, including effective and expiration dates
• Disclosures, terms and conditions

What to Do When Your Insurance Binder Expires

The expiration date will vary based on the formal policy effective date and other details. If the insurance binder expires without issuance of a formal policy then the organization will not be covered. This can be a very risky situation and often requires the guidance of an experienced broker such as Limit.

Insurance Subjectivities

Insurance binders can expire without the issuance of a formal, long-term policy for several reasons. Most commonly, the insured organization fails to meet certain subjectivities set forth by the insurance carriers. Subjectivities are requirements that an organization must meet in order to receive the full coverage outlined in the insurance policy.

Subjectivities are necessary for an insurance carrier to finalize their underwriting and receive internal approval to issue an insurance policy. The most common subjectivities are outlined below and should be understood prior to seeking a formal insurance policy.

Qualifications

Qualifications are documents or articles that demonstrate the organization’s expertise in their business operations and product. To fulfill this subjectivity, insurance carriers may require anything from resumes, statements of the organization’s qualifications (SOQ), training certificates, company brochures, or product samples.

Financials

Financials are documents which outline the organization’s financial health and quantitative performance metrics. Financials offer the carrier an inside look into the organization’s business operations, ensuring that the deductibile can be paid in a timely manner and that the organization is behaving responsibly. Many policy premiums are based on an organization’s pro forma revenue for the upcoming year.

Loss Runs & Prior Coverage

Loss runs document any organization losses under prior insurance policies. This subjectivity ensures that the carrier has full visibility into prior organization claims, allowing them to anticipate future claims by the trending and normalization of data. Understanding prior insurance coverage documentation allows the carrier to honor certain pre-existing conditions and set their issuance date such that there are no major gaps in coverage.

Health & Safety Plan

Some insurance carriers require that the organization submit a Health & Safety Plan which outlines the continuity of business in the event of a major catastrophe or loss event. This document may also outline plans of succession, workplace risk mitigants for employees, and the organization’s general safety policies and procedures.

These are just a few of the most common subjectivities often required by insurance carriers. Failure to submit these documents or meet the requirements set forth under each may result in the delay or cancellation of formal policy issuance. Failure to complete necessary premium or fee payments in a timely manner may also have the same effect. In this event, it is crucial that the organization consult with an insurance broker who can offer guidance and negotiate with the insurance carrier to get the policy issuance back on track.

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