Contractual risk transfer shifts obligations from one party to another either using indemnity, waivers of subrogation, insurance and other language in contracts and agreements. When employed correctly, contractual risk transfer results in all involved parties bearing financial responsibilities based on many factors including who is doing the work, who has leverage and negotiating skills and who has the ability to accept the risks being transferred. As such, it is a critical component of a well-balanced risk management plan. We will focus here on insurance risk transfer via insurance requirements in a contract. For example, the purchase of an insurance policy aims to pass a specific risks of loss from the policyholder to the insurer depending on the type of insurance being purchased. Furthermore, when you are working with tenants, contractors, vendors and other third parties who purchase insurance, that presents opportunities for risk transfer such as strong insurance requirements including additional insured status, waivers of subrogation, loss payee status, etc. being incorporated into your agreements, to protect your interest from a loss arising from the other parties operations, services, or work.
A careful review of third parties insurance documentation is a critical step in verifying that the other parties maintains the required insurance and in particular, that the specific risk transfers sections of the insurance are review and confirmed acceptable. Without taking the necessary precautions to carefully review additional insured, waiver of subrogation and loss payee status endorsements, you are vulnerable to the costly mistake of thinking you have transferred the risk when in fact, you have not.
Whether or not you’ll achieve successful risk transfer is contingent upon the strength of your contract, insurance requirements and verification of those insurance requirements by implementing processes for collecting, reviewing, correcting and storing insurance documents.
3 Reasons You Should Care About Risk Transfer
Here are three key reasons why you should start building your risk transfer strategy:
- It can be difficult to manage the type and breadth of the insurance liabilities you transfer and/or accept in contracts and agreements. When you focus on insurance risk transfer, either by auditing insurance and contractual agreements in-house or by outsourcing the undertaking to professionals like BCS, you regain confidence with your insurance coverage and can make cost-effective adjustments before contracts are signed, and most importantly, before claims are filed.
- Other parties can contractually assume their fair share of liability and extend their insurance to you where appropriate. Many liability claims reach six- and seven-figure amounts; you certainly don’t want to unknowingly retain risk, when it could have been transferred.
- Effectively managing your liabilities often translates into savings on your own insurance costs. Therefore, developing a solid insurance risk transfer strategy is a proactive way to remain competitive in the marketplace.
How BCS Helps
We know that keeping track of contracts and the associated insurance documentation for each and every third party you do business with can be cumbersome, with a risk of error depending on your knowledge and resources. Luckily, BCS—and the BCS App—are here to help. Whether you’re looking for a software solution to help you track and store insurance documents, such as certificates of insurance, or need a full audit of insurance documents in accordance with your specific insurance requirements, BCS has your back.
The BCS App is a proprietary software application that stores and tracks certificates of insurance for every one of your vendors, leaving you with a flawless record of who’s compliant and who’s not. The app is totally customizable to accommodate virtually any compliance standards.
Need a more involved level of service? That’s good, because BCS was going to give it to you, anyway. Although the BCS App is a stellar software as a service platform in its own right, what sets BCS apart from all other competitors in this space is their dedicated support team, which will work closely with you to tailor the software and to perform insurance audits on your behalf.