As we head into a new year, there's no better time to ensure agency managers and owners equip their producers with foundational insurance industry knowledge and concepts.

From young agents fresh out of training to seasoned professionals with decades of experience, every producer will benefit from a refresher in the building blocks of insurance. Doing so will help everyone at your agency better explain tricky insurance concepts to clients, avoid errors & omissions claims, and increase sales and service excellence.

Here are five insurance concepts every producer should make sure they know inside and out—and know how to explain to their clients—in 2025.

1) Certificates of Insurance

Certificates of insurance (COI), the ACORD 25, certifies to a third party that the named insured has liability and/or workers compensation coverage provided by a specific carrier. The COI provides information only.

When asked for “proof of insurance," never generalize coverage. Simply send the COI and attach a copy of any additional insured endorsements and a listing of all commercial general liability (CGL) forms and endorsements. If the certificate holder desires additional information, let the certificate holder request it.

A certificate does not create coverage that does not already exist. It is not your responsibility to offer explanations to the certificate holder unless they request clarification. All you owe is responsiveness, truthfulness and an attempt to answer reasonable questions.

Crucially, a COI gives no specifics about coverage because it's only intended to show a policy exists. Further, the agent has no contractual relationship with the outside party, the COI requestor. Do not agree to any specific contractual requests; just furnish the COI. Only the carrier can change the contractual language of the policy.

However, before you issue a COI, stop. There are a few things you need to check. You must:

• Confirm the policy is in effect and has not lapsed.
• Confirm correct current coverage amounts.
• Confirm all policy coverages indicated are in the policy.
• Confirm any entity you list as an additional insured.
• Attach the additional insured endorsement to the COI if the insured requests additional insured status.

Again, a COI is for information only and should only show what the policy language covers. COIs have major potential for E&O claims, which is why understanding their purpose and limitations is crucial.

2) Naming Additional Insureds

A person or entity requests additional insured status to gain some level of protection under another party's CGL policy. Essentially, they are trying to protect themselves against liability arising out of the relationship between the parties.

For example, upper tier contractors often require subcontractors—lower tier contractors—to name them as additional insureds as part of their contractual risk transfer requirements. Doing so extends a level of financial protection to the upper tier for its liability arising out of the actions of the lower tier.

One myth regarding the extension of additional insured status that must end is that the inclusion of an additional insured impacts the lower tier's coverage limits. This is not true. The injured party is paid once, regardless of the number of insureds—named or additional—involved. However, the additional insured may lower the aggregate limit because the additional insured may find coverage even if the carrier excludes the named insured.

Other key facts surrounding the inclusion of additional insureds on the CGL policy include: 

• The additional insured is protected only when and if the named insured is a cause of the injury or damage. In construction, no additional insured endorsement extends coverage to the additional insured for its sole actions.
• Adding an additional insured allows the additional insured to find protection on a primary and noncontributory endorsement. ISO's CG 20 01 Primary and Noncontributory endorsement is triggered only when the contractor is protected as an additional insured.
• Even when an upper tier is covered as an additional insured, a waiver of subrogation is still necessary.

3) Calculating Business Income Coverage's Period of Restoration

The restoration period on a business income insurance policy refers to the length of time the insurance will cover lost income and operating expenses while restoring a business after a covered loss.

This coverage is crucial for helping businesses maintain cash flow after a disruption that triggers the policy's coverage. Most policies set a specific time limit, often up to 12 months, though extensions can sometimes be added by endorsement.

The period of restoration in a business income insurance policy is designed to achieve several key objectives. First, it allows time to rebuild the damaged property or, if necessary, find and move to a new location. During this period, businesses also need the resources to purchase, install and make operational new or replacement machinery and equipment.

Additionally, the insured must replenish stock to get the business ready for operation again. Although, for manufacturing operations, this doesn't cover the time needed to produce finished goods.

Ultimately, the goal is to help the business return to the same level of operational capability it had before the loss as quickly as possible.

Many factors can influence the length of the restoration period. Adjusting the initial loss can take time, as can developing and approving building plans. Securing a contractor, applying for building permits and preparing the site all add to the timeline. The physical rebuilding process, restocking, rehiring employees and replacing specialized machinery and equipment each bring additional considerations. Moreover, compliance with various ordinances and interactions with government officials may cause delays, slowing the return to full operations.

It is important to explain this timeline to clients when deciding how much business income a client should purchase. Crucially, business income is a time element coverage. When you develop the worst-case period of restoration, you can develop a business income plan.

4) Replacement Cost

Indemnification in property insurance is defined as the contractual obligation of one party—the insurance carrier—to return an item to another party—the insured—in the same financial condition as before the loss without improvement or betterment. In other words, insurance should put the insured in the same position they were in before the loss, not a better condition.

Insurers indemnify by paying “the lesser of" the value of the lost or damaged property; the cost of repairing or replacing the lost or damaged property; the agreed or appraised value; or the cost to rebuild or repair with other property of like kind and quality.

With homeowners insureds, agents must explain replacement cost because it is the primary valuation method for Coverages A and B. Importantly, replacement cost does not provide new for old items but can sometimes put the insured in a better situation than before a loss. Ultimately, it is often considered the highest form of indemnification.

However, there are some barriers to replacement cost that can create confusion. Certain property is ineligible, such as artwork or stock, and agents must endorse coverage onto the policy. Also, governmental problems or ordinance and law can create barriers to rebuilding.

Building codes in certain jurisdictions may turn a partial loss into a total loss. However, the insurer will only pay for the damaged portion on an unendorsed commercial property policy. For example, the authority of the prevailing building code can determine if the building or roof requires total replacement. Additionally, what constitutes a total loss varies by state.

For commercial policies, an ordinance and law endorsement can help cure these potential coverage shortfalls. When offering replacement cost, explain some of the problems the insured may encounter even in a partial loss to a building. Even though the homeowners policy includes automatic coverage equal to 10% of the building limit, for many losses this is simply inadequate. Endorsing the policy to increase the coverage to at least 50% of building limits is now a good practice.

It's generally best to insure property at 100% total insurable value (TIV), but never use 100% coinsurance. Don't let the lower rate draw you in. Property values can change, as we've seen in the past few years.

5) Coinsurance

Coinsurance requires the insured to purchase and maintain some percentage of the structure's TIV at the time of the loss. This clause is designed to encourage adequate insurance coverage for properties by requiring a minimum level of coverage to qualify for full reimbursement on claims.

Here's how it works: If a property is worth $1 million and the policy has an 80% coinsurance requirement, the policyholder must insure it for at least $800,000. If they insure for less than that—say, only $600,000—the insurer will only pay a percentage of the loss, even if it's less than the policy limit. In this case, if a $200,000 loss occurs, the insurer would calculate the payout as a fraction of the amount actually insured versus the coinsurance requirement. This means the insurer would pay only a portion of the $200,000, and the policyholder would have to cover the rest.

There are many other complications with coinsurance. Calculating the TIV is not an exact science and insureds, replacement cost estimating software and carriers may all disagree on the exact amount. Agents must use their best judgment but be careful not to make a valuation recommendation; simply furnish the data provided by the carrier's valuation data and let the insured pick the coverage number.

However, ensuring adequate coinsurance is insufficient. Try to encourage the insured to choose an amount that covers the TIV adequately, although it's ultimately the insured's choice. Be sure to document the valuation and document when the insured rejects insuring to value. Further, coinsurance conditions in property insurance are structured to encourage policyholders to carry higher insurance limits, aligning coverage with the statistical likelihood of a partial rather than total loss.

Coinsurance only applies to partial losses and is based on the property's value at the time of the loss, not at the policy's inception. Generally, as the coinsurance percentage required by a policy increases, the premium rate decreases, providing an incentive for higher coverage. Remember, property should be insured at 100% of its TIV but it's recommended to avoid using a 100% coinsurance clause, which can be risky if values fluctuate or coverage falls short at the time of a claim.

These concepts might seem basic—and even elementary to some agents. But earnest dedication to the fundamental basics of insurance and rehearsing how to explain them to clients can only cause positive results.

Nancy Germond is Big “I" executive director of risk management and education. 

This article was adapted from the Commercial Producer Onboarding Guide, which contains 13 core videos critical to your producer onboarding process and includes key takeaways and links to accompanying handouts.