What the form is
The CR 20 20 Calculation of Premium endorsement is an Insurance Services Office (ISO) form used in Commercial Crime insurance. Its primary purpose is to outline the methodology for calculating the premium for policies that extend beyond a single year or are written on a continuous basis until cancelled. This endorsement allows the insurer to adjust the premium at each anniversary or continuation date based on the rates and rules that are in effect at that time, rather than locking in a premium for the entire multi-year term based on the initial rates.
Classes of business it applies to
This endorsement is applicable to a wide range of businesses that purchase Commercial Crime insurance policies with terms longer than one year or on a continuous basis. This can include, but is not limited to:
- Financial institutions
- Retail operations
- Manufacturing companies
- Service industries
- Non-profit organizations
- Governmental entities
Essentially, any insured requiring a crime policy that is not a standard one-year term may have this endorsement attached. For example, a municipality with a three-year crime policy term would likely have the CR 20 20 endorsement to allow for premium recalculation at each annual anniversary.
Special considerations
Key considerations for the CR 20 20 endorsement include:
- Policy Term: It is specifically designed for multi-year policies or those that are continuous until cancelled. It would not typically be used for a standard annual policy.
- Premium Stability vs. Accuracy: While a multi-year fixed premium might seem attractive for budgeting, this endorsement allows the insurer to adjust to changing risk landscapes and rating factors, ensuring the premium remains adequate over time. Conversely, it means the insured's premium can increase (or potentially decrease) at each anniversary.
- Transparency: The endorsement should clearly state that premiums are subject to recalculation, ensuring the insured understands this process from the outset.
For instance, if a company signs a three-year crime insurance policy and the insurer experiences significantly higher losses in that line of business by the second year, this endorsement allows the insurer to adjust the premium for the third year to reflect the updated rates and risk assessment, rather than being locked into an inadequate premium.
Key information for agents and underwriters
Agents and underwriters should be mindful of the following:
- Communication with Insured: Agents must clearly explain to the insured how their premium may change at each anniversary or continuation date due to this endorsement. This manages expectations and avoids potential dissatisfaction.
- Rating Process: Underwriters need to ensure that the rating systems and processes are in place to accurately recalculate premiums at each relevant date using the then-current rates and rules.
- Market Conditions: Fluctuations in the insurance market, changes in crime trends, or modifications to the insurer's rating methodology can all impact the recalculated premium. Underwriters should stay informed of these factors.
- Documentation: The policy declarations should clearly reflect the presence of this endorsement and the basis for premium calculation.
Underwriters will use this endorsement to maintain premium adequacy over the life of a longer-term policy. If an underwriter anticipates significant changes in exposure or market rates, this endorsement provides the mechanism to adjust the premium accordingly, rather than having to non-renew and rewrite the policy simply to update the premium.