1. Forms
2. MP
3. MP-01-01

What the Form Is

The HP MP 01 01 15 Minimum Earned Premium Endorsement is a modification to an insurance policy, typically a Commercial Property Policy. Its primary function is to establish a minimum percentage of the policy's total premium that the insurance company will retain, even if the policy is cancelled by the insured before its scheduled expiration date. This ensures that the insurer covers its initial administrative, underwriting, and other fixed costs associated with issuing the policy, regardless of an early termination by the policyholder.

Classes of Business It Applies To

This endorsement is commonly used in various Commercial Insurance lines, particularly Commercial Property insurance. Real-world examples include:

• Policies for governmental risk-sharing agencies, such as the Colorado Intergovernmental Risk Sharing Agency (CIRSA).
• Insurance programs for state entities, like the State Of West Virginia.
• It can be applied to a wide range of commercial businesses where the insurer deems it necessary to protect against the financial impact of early policy cancellations.

Special Considerations

Several important points to consider regarding this endorsement:

• Specified Percentage: The endorsement will clearly state the minimum earned premium percentage (e.g., 25% of the original policy premium as seen in examples). This percentage is fixed and non-refundable if the insured cancels the policy.
• Insured's Cancellation: The minimum earned premium primarily applies when the insured initiates the cancellation.
• Insurer's Cancellation: If the insurer cancels the policy for reasons other than non-payment of premium, the earned premium is typically calculated on a pro-rata basis, and the minimum earned premium provision may not apply.
• Non-Payment of Premium: Failure by the insured to make timely premium payments can be treated as a request by the insured for cancellation, potentially triggering the minimum earned premium. However, some policies may allow a grace period to remit payment and rescind the cancellation.
• Policyholder Awareness: It is crucial for policyholders to understand this provision before binding coverage, as it directly affects the amount of any potential refund upon their cancellation of the policy.

Key Information for Agents and Underwriters

• Agents: Should proactively explain the Minimum Earned Premium Endorsement to clients, ensuring they understand its implications, especially concerning potential refunds on early cancellation. This transparency can prevent misunderstandings and dissatisfaction later.
• Underwriters: Utilize this endorsement to manage financial risk, particularly for policies with high upfront costs or for classes of business with historically higher rates of early cancellation. The specific percentage can be adjusted based on the risk profile, policy term, and administrative expenses. It helps ensure that acquisition costs are covered and provides a more stable premium base.
• Pricing and Negotiation: While often a standard provision for certain policies, the minimum earned premium percentage might occasionally be a point of discussion, though typically it's set by the insurer based on their cost structure and risk assessment for the specific type of coverage.
• Regulatory Aspects: Ensure the use and language of the endorsement comply with state-specific insurance regulations regarding earned premiums and cancellation provisions.