1. Forms
2. MP
3. MP-03-02

What the form is

The MP 03 02 Co-insurance endorsement is an Insurance Services Office (ISO) form used to add a coinsurance clause to a Management Protection insurance policy. Its primary function is to stipulate that the insured will share in a percentage of covered losses. The endorsement requires the insertion of a specific coinsurance percentage. When a loss occurs, this percentage is applied to the amount of the loss (after the retention amount has been subtracted) to determine the portion of the loss the insured is responsible for.

Classes of business it applies to

This endorsement is used with Management Protection policies. These policies typically provide coverage for executive liability exposures faced by various organizations. Examples include:

• Publicly traded companies
• Private companies
• Non-profit organizations
• Financial institutions

The endorsement would apply in scenarios where the insurer and insured agree to share the risk for claims such as those related to directors and officers liability, employment practices liability, or fiduciary liability, which are common components of Management Protection policies.

Special considerations

• Mandatory Percentage: A coinsurance percentage must be explicitly stated in the endorsement.
• Application of Coinsurance: The coinsurance applies to the loss amount that exceeds the policy's retention or deductible.
• Coverage Specificity: Some versions or state-specific filings of this endorsement may limit its application to particular coverage parts within the Management Protection policy. For example, a California filing (MP 03 02 10 06) specified its use "FOR COV. C ONLY". Agents and underwriters should verify if such limitations apply.
• Use with Specific Forms: ISO documentation indicates this endorsement is designed to be used with specific Management Protection coverage forms, such as MP 00 02 (Management Protection Policy) and MP 00 05 (Financial Institutions Management Protection Policy).

Key information for agents and underwriters

• Risk Appetite and Pricing: The introduction of a coinsurance provision can impact the premium, generally lowering it as the insured takes on a greater share of the risk. Underwriters will assess the insured's financial capacity to absorb their share of potential losses when determining an appropriate coinsurance percentage.
• Clarity for Insureds: Agents must clearly explain the implications of the coinsurance clause to the insured, ensuring they understand how it will affect claim payouts and their financial obligations in the event of a loss.
• Risk Management Incentive: Coinsurance can act as an incentive for the insured to implement stronger risk management practices, as they have a direct financial stake in minimizing losses.
• Underwriting Assessment: Underwriters should consider the nature of the insured's operations, their loss history, and their overall financial stability when agreeing to a coinsurance percentage. A higher coinsurance percentage might be acceptable for financially strong organizations with robust risk management.