HOW TO CANCEL A POLICY . . . CORRECTLY
In this article, you'll learn the correct way to cancel a policy, either by returning the original policy or by using an appropriate ACORD form. You'll also discover effective control procedures that ensure that cancellations are handled correctly and efficiently.
OVERVIEW
The Cancellation Request/Policy Release ACORD Form 35 should be used to terminate a policy whenever the original policy has not or cannot be returned for cancellation.
Should You Issue a Cancellation?
When an insured calls and requests that a policy be canceled, advise the insured as follows:
1. Ask the insured to return the original policy with a letter requesting the cancellation, the date to be canceled, and the reason for cancellation.
2. If the insured cannot or will not return the original policy, then advise that a Cancellation Request form is being mailed, and that all insureds and mortgagees must sign it and return it to you immediately.
3. Ask the insured for the effective date of cancellation and for the reason. If the policy is being written elsewhere, ask for the name of the replacing company and the policy number, if available.
4. If the insured is asking that the cancellation be back-dated more than 10 days, advise that a letter stating that no claims have occurred in this period must be attached to the Cancellation Request form, with the replacement policy stated on the signed form. Inform the insured that there is still a possibility that the company will not back-date the cancellation.
5. Advise that there will be an earned or returned premium due (whatever the case may be).
6. Write a letter requesting that the original policy be returned to the agency and/or to send the Cancellation Request form immediately (to speed up the process).
Agency Control of Cancellations
Control the cancellation procedure as follows:
1. Only well-qualified, knowledgeable individuals should be involved in the cancellation procedure. Train everyone who handles them in exactly what is to be expected.
2. All who handle cancellations must understand the cancellation authority of each company. It ' s recommended that you photocopy this authority by company and give a copy to each person handling cancellations.
3. Establish an internal communication system that will immediately put the accounting department on notice that a policy has been canceled and that they must follow up on the flagged amount. It would be wise to develop a standard form of written communication for this, or to give a copy of the cancellation form to accounting.
Errors & Omissions Possibilities
Improper handling of cancellations can result in great costs to the agency-both through Errors & Omissions claims and uncollected earned premiums.
What happens if:
- You fail to follow up the receipt of the signed cancellation request form? If it is not received promptly by the company, the date of cancellation will not be recognized by the company, and the policy will continue to earn a premium, which may be uncollectible from the insured.
- You do not send the proper forms for the insured to sign, or have neglected to instruct the insured correctly? Since the policy has not been canceled, if a large claim should occur, your company would have to pay. Depending upon the circumstances, that could result in an errors and omissions problem for your agency.
- You do not obtain the mortgagee release (signature) on the form? If this signature is not obtained, the mortgagee is still covered in the event of damage to the property in which the mortgagee has interest.
Remember: You must complete the form very carefully, being sure that typographical errors are corrected on all copies. Never sign anyone else's name on the form to speed up the processing. The insured who signs must be the first-named insured for a Commercial policy; all named insureds must sign a cancellation for a Personal Lines policy; and an authorized signature must appear for any mortgagee, lienholder, or loss payee interest. Dates must be stated correctly, and the effective time of cancellation must be included.
Why Should You Include Replacement Policy Information?
This evidence releases your company from coverage under the policy being canceled.
Finally, make sure that the insured understands exactly the result of signing this cancellation request. Whenever possible, request that the insured send you the cancellation request in writing. And send a letter with the cancellation request form to the insured.
Remember: Time is money. The longer it takes to process the cancellation, the more it may cost the agency. Control this procedure to monitor the time it takes, and to make sure it is accurately executed (avoiding any errors and omissions, which are sure to be costlier still).
CANCELLATION CHECKLIST
This form can be used to control the cancellation procedure through all departments. Work out how much time this process usually takes in your office, and establish suspense dates accordingly.
CANCELLATION CHECKLIST
1. Name of Insured:
2. Date [MO/DA/YR] and Manner of Contact:
(telephone, letter, in person, and so on)
3. Reason:
4. Policy Number and Company:
5. Method:
Return original policy and/or renewal certificate
Lost-policy release (keep copy in file)
Cancellation notice (direct mail/registered)
6. Attach a copy of the lost-policy release or evidence of cancellation to all affected daily reports:
Date:
7. Date copy sent of evidence of cancellation to accounting and account card marked:
Date:
8. Suspense date for receipt of cancellation evidence:
Date:
9. Date sent to company:
Date:
10. Suspense receipt of earned/return premium:
Date:
11. Date invoice earned mailed with letter:
Date:
or
Check issued and mailed with letter:
Date:
12. Suspend for collection:
Date:
13. Date cancellation process completed and insured's file sent to dead file:
Date:
Notes on the ACORD Cancellation Request/Policy Release
Here are some tips to keep in mind when completing the ACORD Cancellation Request/Policy Release:
- Attach the declaration page of the policy and all other pages with any typing on them to the form. The policy jacket and any printed forms can be thrown away.
- When a Personal Lines policy of a married couple is being canceled, both husband wife must sign the form; in other cases, an authorized person must sign.
- Check the applicable box to indicate the method used for figuring the cancellation return or additional premium. "Flat" means no premium charge is made for the policy (but check to be sure there is no special reason that the total premium should not be canceled, such as Minimum Premium Earned, not returned soon enough, or any other company requirement); " Short Rate" indicates that the cancellation was made at the insured' s request and the policy is subject to a short-rate penalty-exception is made in some states if a premium is financed (and it then may be cancelled on a pro- rata basis); "Pro Rata" indicates that the cancellation is made at the company's request, so no penalty can be charged - premium is returned on an actual-earned basis.