Endorsement

Insurance needs of Indian businesses rarely remain static throughout a policy year. New assets are acquired, operations expand to new locations, business activities change, and risk profiles evolve. Endorsements provide the legal mechanism to modify an existing policy to reflect these changes without issuing an entirely new policy.

In the Indian market, endorsements are formal documents issued by the insurer, referenced by an endorsement number, and attached to the policy. They become part of the policy contract and, in the event of any conflict between the endorsement and the original policy wording, the endorsement typically prevails. IRDAI requires that all endorsements be documented in writing and communicated to the insured.

There are several common types of endorsements in Indian commercial insurance. An addition endorsement extends coverage to new assets, locations, or perils not originally included. A deletion endorsement removes assets, locations, or coverages. A modification endorsement changes existing terms — such as revising the sum insured, altering the deductible, or updating the insured's address. A clauses endorsement adds specific clauses like the reinstatement value clause, escalation clause, or agreed bank clause to a fire policy.

Premium implications of endorsements follow a standard practice. An endorsement that increases coverage (higher sum insured, additional perils, new locations) attracts an additional premium calculated on a pro-rata basis for the remaining policy period. Conversely, an endorsement that reduces coverage may entitle the insured to a refund of premium, though short-period cancellation scales (rather than pro-rata) may apply depending on the insurer's terms.

In the Indian banking context, endorsements play a critical role. When a business obtains a loan secured against insured assets, the bank or financial institution requires a bank clause endorsement (also called a lender's loss payable clause) on the policy. This endorsement ensures that claim proceeds are paid to the lending bank to the extent of its financial interest. The Reserve Bank of India's lending norms effectively mandate this for secured commercial lending.

Endorsements must be requested through the insurer or the IRDAI-licensed insurance broker. Indian businesses should review all endorsements carefully to ensure they accurately reflect the intended changes and maintain complete records as part of their policy documentation. During the claims process, the insurer will verify all endorsements to determine the exact scope of coverage at the time of loss.