Risk managers are expected to request several documents from each third-party subcontractor, vendor or agent that their companies outsource duties to. These documents may include certificates of insurance (COI), special licenses, and any other qualifying document necessary to prove they're insured and wholly compliant.
This explainer covers the fundamentally important certificate of insurance document, including how it should be handled, and why.
Risk management professionals are tasked with spotting and analyzing any potential risks that may threaten the well-being of their companies. This includes workers' safety, security, reputation, and of course—bottom-line cash flow.
What is a certificate of insurance (COI)?
To ensure vendor compliance, and subsequently, to limit their own liability, risk management teams collect what are called certificates of insurance, or COI. COIs serve as proof that an insurance policy has been issued, but without the bulk of the policy itself. Rather, it's a snapshot of the policy, listing the following details:
- Policyholder's name
- Policy effective date
- Type of coverage
- Policy limits
To cultivate a thorough understanding about what a COI is, perhaps it'd be more effective to detail what it is not:
A COI is NOT an insurance policy. It merely serves as proof that an insurance policy has been issued; that it exists.
- Modify coverages
- Alter the terms of the insurance contract
To these points, most COIs should include language such as:
"Issued as a matter of information only, and confers no rights upon the certificate holder. This certificate does not affirmatively or negatively amend, extend, or alter the coverage afforded by policies."
Types of COI
Purchase of any kind of insurance policy should prompt an issuance of a certificate of insurance. COIs may vary slightly, depending on the kind of insurance purchased, but serve the same purpose, in any case. Thus, we'll limit this discussion to the main players that risk managers of major corporations deal with: liability insurance and workers' compensation insurance.
Certificate of Liability Insurance
Liability insurance provides coverage for lawsuits that occur from third-party claims of damage or harm caused. A certificate of liability insurance might be requested if:
- A business owner is leasing a building or space—to protect the landlord from liability if someone is injured at the business owner's establishment, for instance
- Contractors or vendors are performing work at a client's location—to protect the client organization against property damage or injury caused by the vendor, for example.
Certificate of Workers' Compensation Insurance
Especially within construction projects, general contractors may outsource certain aspects of work to third-party vendors or subcontractors. In order to protect themselves from liability in cases where a vendor or subcontractor injures his/herself on the job, the general contractor or project management company should acquire certificates of workers' compensation insurance.
More Carriers, More Problems
Oftentimes, vendors use different insurance carriers for different types of insurance (i.e. one for general liability, another for workers’ comp), and each policy likely has a different expiration date from the last. To boot, each vendor will probably have to go through two or three policy submissions before specific compliance requirements are actually met.
For large organizations with upwards of 100 vendors—hotel chains such as Hilton, for example—this could mean tracking more than 500 COIs every year. The effort required to track and correct this many COIs could amount to several weeks of work for your team—time that can be allocated elsewhere if certificate of insurance tracking is outsourced to a more efficient system.
Don't become another COI horror story.
A quick Google search demonstrates just how easily fraudulent COIs can be doctored. It's a simple document, and templates are readily available to anyone with internet access. Unfortunately for contractors, any losses resulting from a claim built around a faulty COI will fall on the contractor.
This means that collecting COIs is only the first of several steps in ensuring compliance; it's the first line of defense, insurance-wise. To guarantee loss transfer, it is imperative to exercise due diligence in reviewing full insurance contracts, as well as collecting and tracking COIs.
This is why BCS takes its job a few steps further, with a unique, three-fold compliance solution that melds cutting-edge COI tracking software — namely, the BCS app— and exceptional human services from a distinguished team of experienced risk management specialists:
Step 1. Collect
BCS collects and securely stores certificates of insurance and other relevant documents and data using our proprietary, web-based software, InsurComply. Our clients and their vendors, tenants, borrowers, and/or agents can submit documents and data 24/7, in a variety of ways.
Step 2. Correct
Using a client's contract terms and account instructions as a guide, our dedicated human resources identify and correct deficiencies in certificates of insurance (and other documents and data).
Step 3. Protect
BCS protects its clients by ensuring third parties agree and comply with contract terms and conditions. This protection is easily identified in our detailed, accurate, and customized reporting.
Protect yourself from these potential vendor claims.
Examples of claims alleging bodily injury include:
- "I contracted food poisoning from your concessions."
- "I broke a tooth from biting down on a hard object in my food."
- "I was injured when a display booth collapsed."
- "I slipped and fell due to an inadequately secured electrical cord."
- "My small child choked on a team spirit item after leaving a sporting event."
- An intoxicated patron was involved in a car accident after being sold more alcoholic beverages than they should have been allowed.
Claims alleging property damage are based upon instances where harm is inflicted upon someone’s property as a result of:
- Another person’s negligence
- Willful destruction of that person’s property
- An act of nature
Personal (Character) Injury
Examples of claims alleging personal injury include:
- Wrongful arrest of a patron by a security officer
- Security officer is accused of false imprisonment for holding accused shoplifter
- Vendor sues another vendor for slander
Collecting and tracking proofs of insurance is always integral for any company looking to hire third-party vendors and subcontractors. However, a recent boom in the so-called "shared" and "gig" economies supports rampant third-party outsourcing, making diligent certificate of insurance tracking more pertinent than ever before.
COI Tracking & So Much More
BCS Business Credentialing Services prides itself on providing the perfect balance between technological support and human resources for third-party liability risk mitigation.
The BCS App features the proprietary software, InsurComply, which helps the team to collect, review, screen, store and verify the insurance documentation of third parties on behalf of others for matching insurance documentation against insurance compliance requirements.
Learn more about what BCS can do for your business.