Burand’s Agency E&O Blog: Tip #25

Binder Knowledge. What is a binder?

I ask this question of most agency staff and many producers I interview. Less than 10% of staff and probably less than 25% of the producers I interview know what a binder is. An amazing lack of knowledge is understandable in agencies that rarely use binders and more and more agencies no longer issue binders except rarely. However, the percentage is no higher in agencies that issue binders every day and this is just plain scary. So what is a binder? Here are the answers I usually get:

• Proof of insurance

• Evidence of insurance

• An abbreviated copy of their policy

• A piece of paper to make the customer feel good until their actual policy arrives

A binder is a temporary insurance policy. It is a contract of insurance potentially with its own terms. It is not proof of insurance and should not be used as such because arguably, when a binder is issued for any reason when a policy already exists, a second policy has been issued. Most binder forms state the binder is only good for X days or until the policy is issued. If a policy already exists (and it does not matter whether it has arrived), when the binder is issued, then when does the binder expire? Somehow the vast majority of agency people have lost this critical knowledge. It is time for everyone to learn what binders are designed for and their proper use to avoid unnecessarily increasing the agency’s E&O exposures.