Insurance terminology and paperwork can be confusing. Individuals who do not have a good understanding of these technical wordings tend to confuse the terms certificate of insurance processing and policy issuance. These are often used interchangeably. But they have different objectives and go through different processes. It’s important to distinguish between these two for the insured.
What is Policy Issuance?
Policy issuance is the formal process of creating a contract between an insurer and a policyholder. It includes underwriting, risk assessment, and negotiating the terms of the coverage.
Steps in Policy Issuance:
- Application Submission: The potential policyholder will fill out an application that has the required details about the risk to be insured.
- Risk Assessment and Underwriting: The insurer evaluates the risk and sets the premium, coverage limits, and exclusions.
- Quote Generation and Approval: The applicant is provided with a quote, after which they have the opportunity to review the application and accept the policy terms.
- Policy Documentation and Issuance: After the applicant accepts the terms and pays the premium, the insurance company issues a formal policy document.
Key Features of Policy Issuance:
- Creates a binding legal contract.
- It has full policy terms, conditions, exclusions, and endorsements.
- Requires thorough risk assessment before approval.
What is a Certificate of Insurance Processing?
This happens after the policy is in force. It’s proof of coverage to third parties. Unlike a policy, a COI doesn’t grant or modify coverage but simply summarises existing insurance details.
Steps in COI Processing:
- Certificate Request: A policyholder or third party (such as a client, landlord or contractor) requests a COI from the insurer or broker.
- Verification of Coverage: The insurer checks if the policy is valid and satisfies the third party’s requirements.
- Issuing of the Document: The certificate of insurance is created. It has the policyholder’s and insurer’s name. It also has the policy limits and expiration date.
- Delivery to the Requesting Party: The document is sent to the requesting entity in electronic or hard copy form.
Key Features of COI Processing:
- Doesn’t create a new insurance contract.
- Needs only some hours.
Key Differences Between Policy Issuance and COI Processing
| Aspect | Policy Issuance | COI Processing |
| Purpose | Creates a legally binding insurance contract. | Provides proof of existing insurance coverage. |
| Documentation | Full policy document with terms and conditions. | Summary document with key policy details. |
| Processing Time | Can take days or weeks due to underwriting. | Usually processed within hours or a day. |
| Request Initiation | Started by the policyholder applying for coverage. | Requested by third parties needing proof of coverage. |
| Legal Binding Status | Legally binding. | Not legally binding, just informational. |
Conclusion
While policy issuance is a comprehensive process that establishes an insurance contract, a certificate of insurance processing merely provides evidence of an active policy. The COI does not alter coverage or grant any rights. It ensures that external parties can verify a policyholder’s insurance status. Understanding the difference between the two things helps businesses and individuals navigate insurance requirements more effectively.
