In today’s business world, many organizations rely on third-party vendors and contractors to fulfil certain business needs. However, these partnerships can also expose businesses to various risks that need to be accounted for through insurance. While securing your own insurance is essential, it’s equally important to ensure that your partners are covered as well. This is where certificates of insurance (COIs) come in.
What is a Certificate of Insurance?
A certificate of insurance is a summary document issued by an insurer that serves as proof that a particular party has an insurance policy in effect. COIs are used across various commercial business relationships, and they provide essential information, including the name of the insurer and insured, essential terms and conditions, policy limits, and the duration of the policy.
The Purpose of COIs
For the insured, COIs serve as proof of coverage that can be provided to customers, contractors, or other third parties quickly and efficiently. COIs also indicate that the insured has the financial resources available to protect those who may be harmed by their actions. For businesses, COIs are critical to managing risks related to contracted work. By collecting COIs from every contractor or third party they work with, businesses can prevent themselves from accidentally taking on risks associated with the work of their subcontractors and vendors. COIs can also provide protection in the event that a contractor is injured on your property while performing work, and they ensure organizations are compensated if contracted work is done improperly or not completed.
Managing COIs Effectively
While collecting COIs is an important risk management strategy, managing them effectively can pose an administrative challenge. It’s critical for businesses to have procedures in place to collect and maintain COIs efficiently. Many organizations choose to automate this process as much as possible, opting for systems that notify them when a COI is required but is no longer in effect.
When managing COIs, there are several factors to consider, including whether the COI is provided on a proper form, whether the company named on the COI is the same as the one named in the contract, and whether the policy is issued by a reputable insurer. It’s also essential to ensure that the types and limits of insurance listed on the form are the same or greater than those required by you under the contract, and that specific policy numbers are listed on the certificate. Additionally, businesses need to ensure that the dates of coverage are adequate for the specified work and that there are notice of cancellation provisions listed on the COI that are acceptable.
Having written contracts with every third party you work with, either by annual agreement for all work or by separate agreement for each project, is also critical. Finally, it’s essential to have a system in place (e.g., a certificate management system) for tracking expiration dates and keeping files organized to account for contracts, COIs, and any other additional insured endorsements.
In conclusion, certificates of insurance are essential for managing risks related to contracted work. They serve as proof of coverage and ensure that all parties involved have the financial resources available to protect those who may be harmed by their actions. However, managing COIs can be complicated, and it’s critical to enlist the help of an experienced insurance broker to ensure that you have the right insurance policies and procedures in place to effectively manage them.