Everything You Need to Know About Certificates of Insurance

Certificates of insurance (COIs) are documents containing all the essential details of an insurance policy in an easily digestible, standardized format. A COI is intended to prove a policy’s status, provide quick access to its coverage details, reduce risk exposure, and protect against third-party liability.

BCS_COI101Pillar-4

 

For projects big and small, liability concerns must be mitigated. Otherwise, project owners, managers, and lenders remain vulnerable to inadequate loss transfer—suffering blows to their reputations every time they are found liable for an accident or oversight. Projects of a substantial size, such as hotel construction, include countless third parties to keep track of, including investors, general contractors, subcontractors, and even passersby.

All parties working on a project should have an insurance policy of some kind, but reviewing every letter of each policy would be a full-time job in itself. Plus, doing so leaves ample opportunity for missing essential details.

Your best chance at successfully mitigating risk and reducing liabilities is to carefully document, track, and manage valid certificates of insurance from third parties.

 Download Now

What is a Certificate of Insurance?

A certificate of insurance (COI) is a document that contains all the essential details of an insurance policy. It encompasses a complete snapshot of the policy on a single form, including the most pertinent aspects, such as:

  • Policyholder's Name
  • Policy Effective Date
  • Type of Coverage
  • Policy Limits

Related: What Is a Certificate of Insurance & Why Do I Need It?

closeup of person signing COI document

Four Reasons Why Certificates of Insurance Are Essential

1. Proves your insurance status.

1. Proves your insurance status.

The COI is a summary of an insurance policy. It effectively serves as proof of insurance, without the bulk of the policy itself.

2. Provides quick access to information.

2. Provides quick access to information.

A COI constitutes an express version of an insurance policy. This convenience could save you dozens of hours of work each year.

3. Reduces liability.

3. Reduces liability.

By carefully documenting certificates of insurance from all third-party vendors, you're setting yourself up nicely for transferring loss to that party's insurer in the event that something goes wrong.

4. Protect yourself when you outsource.

4. Protect you when outsourcing.

Contingent work comes with a unique set of insurance hazards. Performing due diligence and checking each vendor's policy against your requirements could protect you from incidents that could lead to costly litigation and affect the profitability of your ventures.

Business owner carefully reading the contract, sitting at the desk and holding documents

Five Main Types of Insurance Policies

  1. General Liability
  2. Auto Liability
  3. Workers Compensation
  4. Employers Liability
  5. Excess/Umbrella Liability

Types of Certificates of Insurance:

1. Certificate of Liability Insurance

This should be reviewed not only to protect the project owner, but to extend additional insured status to the project manager and possibly a lender. Reviewing certificates of liability insurance is a critical component of risk transfer from the project owner to a third-party vendor. One way of further ensuring that your third parties' insurance coverage is adequate is to look for some of the following indications on the COI:

For a more accurate review of these coverage details, you should collect and review the insurance endorsements.


2. Certificate of Workers Compensation Insurance

This should be required and written per the applicable state statutes and laws.

 

3. Certificate of Auto Liability Insurance

This should be monitored for all vendor-owned, leased, non-owned, and hired vehicles.

 

Related: Limit Your Liability With Full-Service Certificate of Insurance Tracking

Explaining Additional Insured

One of the COI documents that BCS handles most frequently is the ACORD 25 form, a standardized template document often used to represent any of the five main types of insurance policies. It will list the named insured—the person or entity with the most responsibility and who pays the premium—and also contain additional insureds on the policy.

Additional insureds are allowed coverage under the policy owner's contract, but they do not hold the responsibility of paying the premium, nor do they have the power to modify the terms of the policy.

If we return to our example of hotel construction, additional insured endorsements might cascade like so:

A hotel owner enters into a construction contract with a general contractor. A section in that contract states that the general contractor must maintain commercial general liability insurance for the duration of the project. The general contractor will list the hotel chain as an additional insured, because, even though the hotel chain is not performing the work, they may still be sued in the event of bodily injury due to third-party negligence.

From there, the general contractor will request an additional insured endorsement for themselves and for the hotel chain from each third-party subcontractor performing work. If done correctly, this will effectively ensure that liability is transferred to the subcontractors' insurers.

BCS_COI101Pillar-3
ACORD 25 form

Difference Between COI & Insurance

If one party wishes to confirm evidence that another party's insurance is in place to cover any losses to property or bodily injury, that's one thing. It might ask to see their insurance policy. 

But another thing is when the one party (e.g., "Real Estate Corp.") hires the other party (e.g., "Paul the Plumber LLC") for a project and requires that third party to issue a COI. As outlined above, the COI is a concise document containing all the pertinent details of an insurance policy in an easily digestible, standardized form.

More specifically, when Real Estate Corp. asks for Paul the Plumber to issue a COI, it is asking for the policy to be "endorsed" (aka “amended') so that the policy can extend additional insured status to Real Estate Corp. Typically, the resulting COI will then include wording to the effect of "Real Estate Corp. is listed as an additional insured." That way, if Real Estate Corp. gets sued due to an incident related to Paul's work, they should also be covered by his insurance.

Certificates of Insurance Cannot:

  • Modify coverage
  • Alter the terms of the insurance contract

Verifying COI Compliance

There are several factors to consider when checking your business for insurance compliance. 

It's vital that whoever audits your certificates of insurance for compliance is disciplined, experienced, qualified, and has a working knowledge of:

  • Contract Requirements
  • ACORD Forms & Standards
  • Insurance Policies
  • Endorsement Language
  • Workers Compensation Regulations

The inability to "tender" (aka “push”) claims due to COI non-compliance could be devastating, since it's not unusual for verdicts and settlements to reach seven figures. 

Without sophisticated document-tracking procedures, much of your due diligence could be reduced to guesswork.

 

Related: Achieve Compliance With Certificate of Insurance Tracking Software

Without sophisticated document-tracking procedures, much of your due diligence could be reduced to guesswork.

COI Tracking & Management

Many businesses rely on shoddy to non-existent document-collection protocols. When we consider that between 36% to 53% of small businesses are involved in at least one litigation in a year, and almost 90% of corporations are engaged in litigation at any given time, it's tough not to shout "WHY?!?"

As a business owner, you should have contracts with every employee and third-party vendor involved with your projects. Your business is unique, so you’ll want to tailor your contracts to your business rather than duplicate them from the internet. You’ll also want a lawyer to oversee the structuring of these contracts.

You should have certificate of insurance tracking processes in place to measure and track vendor compliance. With some particularly large projects, such as the hotel construction we mentioned earlier, there could be several hundred certificates of insurance and other vendor credentials. Project managers don't have the bandwidth to handle all of these documents, maintain compliance standards, track COI expiration dates, and still complete their projects on time.

That's where technology comes in.

 

Related: Benefits of Modernizing Your Vendor Management Process

Why Do I Need to Track COIs?

Tracking COIs is an essential piece of any organization’s risk management strategy. In a world with an ever-increasing amount of data and documentation—both virtual and physical—it’s easy to lose track of important information, dates, contract terms, and more. If a vendor’s insurance lapses, for example, it can lead to expensive and even potentially catastrophic outcomes for your business.

As such, there are many benefits to tracking COIs:

  1. Eliminating coverage lapses by setting automated notifications that end dates are approaching.

  2. Improving productivity and on-time completion rates by ensuring workers can remain on the job site.

  3. Gaining better insights and identifying potential coverage gaps by centralizing your data.

  4. Protecting your organization as project scopes, conditions, and active vendors and contractors change over time.
alarm icon

1. Eliminating coverage lapses by setting automated notifications that end dates are approaching.

contractor icon

2. Improving productivity and on-time completion rates by ensuring workers can remain on the job site.

Analytics Chart icon

3. Gaining better insights and identifying potential coverage gaps by centralizing your data.

protection icon

4. Protecting your organization as project scopes, conditions, and active vendors and contractors change over time.

It’s clear, then, that tracking COIs is one of the most important risk management steps you can put in place for your business—and it’s something that can be done regardless of budget or the scale of your company. Solutions for COI tracking range from relatively simple in-house methods, such as a spreadsheet, to more sophisticated outsourced services that can include in-depth coverage reviews from teams of specialists.

When to Ask for a Certificate of Insurance

Broadly, you should always ask for a certificate of insurance when a vendor or contractor will perform work that increases your liability. Specific types of liability include financial risks related to injury or death on the job—even if it’s not on your property—as well as equipment and property damage, and delayed, incomplete, or substandard work. 

In addition, you should always ensure that you request and verify COIs before allowing the vendor or contractor to begin work. Even if a contractor provides verbal assurance, there is no guarantee that they fully understand the terms and conditions of their insurance as they relate to your business.

In fact, verifying a contractor’s COI is an essential step for assessing whether their insurance is sufficient to meet your needs for risk mitigation. In cases where it is not, an umbrella or excess insurance policy may be necessary to provide extra financial protection and/or eliminate coverage gaps.

Related: How to Get a Certificate of Insurance

Who Gets a Certificate of Insurance?

Certificates of insurance are issued on behalf of the insured party (typically the vendor or contractor) by an insurance company. Usually, an insurance company will issue a copy of the COI—the proof that the insurance exists—to the insured party, either at the time the policy is purchased or when requested. 

In turn, when a contracting organization requests proof of insurance, the potential vendor or contractor would provide the COI directly to the client.

In cases where a vendor or contractor has to change the insurance duration, coverage levels, or both, the client should request a new COI as proof that the changes have been made and are in effect before allowing them to begin work.

How Long Should I Keep a COI?

Once a contractor has provided a COI, there is little reason for a client to discard or delete it, even after it expires.

Consider again that the function of a COI is to provide proof a contractor held a specific level of insurance for a defined period. However, while the period of coverage may end on a given date, the liability for damages or injury that occurred within that period can remain even after the project is complete. 

For example, in the event of an industrial injury caused by the use of harmful materials on the job, the effects may not show up for months, or even years. If and when they do, having a record of the contractors on the project and proof of their insurance coverage can protect your organization while ensuring that victims receive appropriate restitution.

Additionally, in the event of a labor dispute, the COI can help a client organization prove that a contractor was not engaged as a full-time employee. This can be important in the context of disputes over labor issues, such as health insurance provisions, paid time off, and more.

A comprehensive COI tracking process involves monitoring coverage on ongoing work and archiving past evidence of coverage to protect your organization over the long term.

While the period of coverage may end on a given date, the liability for damages or injury that occurred within that period can remain even after the project is complete. 

What Are Common Challenges Associated With COI Tracking?

If you’re thinking about implementing your own COI tracking solution, there are a few key considerations to factor into your planning:

1. Tracking COIs manually can be time consuming.

There’s no way around it: COI tracking takes time and effort, and can get tedious and repetitive. If you’re planning on taking on this role yourself or assigning it to someone in your organization, be aware that it can involve: 

  • Multiple requests and follow-ups with contractors to actually get the documents
  • Manual data entry into your tracking system
  • Collation and analysis of data to ensure you’re adequately protected
  • A robust system of reminders to ensure that your contractors’ coverage never lapses or becomes inadequate as the scope of a project increases

2. Risk analysis can be complicated.

Collecting and tracking COIs is only half the battle. Analyzing the data and using it to make calculated decisions is where the real challenges reside.

3. Your results are only as good as the effort and expertise you put in.

Assigning COI tracking to someone who does not have adequate time and/or knowledge can have devastating consequences, and the risks increase exponentially with the size and complexity of your business. As such, if you plan to establish an internal COI tracking system, provide training for the employees responsible and ensure that they have enough time to do the job properly. Need help getting started? Check out these COI tracking tips, tools, and free resources.

Related: “Top Ways to Save Time With Compliance Management

What Makes a Good COI Tracking Process?

Any COI tracking process should take account the fact that there are a wide variety of types of insurance certificates and a high degree of variance in the quality of the information they provide. 

While the full process depends on the needs of your organization and number of certificates it handles, in general, the collection and tracking process should:

  • Be articulated in language
  • Have support from senior management (e.g., CFO, risk manager, etc.)
  • Have clear lines of authority spelled out for collection, compliance review, acceptance, and monitoring of certificates, including exceptions
  • Provide a clear documentation trail for each certificate, including corrective actions
  • Allow for regular review, update, and audit of the process with a mechanism for continuous improvement
  • Be supported by COI tracking software or other tools 

Tracking COIs In-House

Tracking certificates of insurance in-house can be a challenge—especially if you don't have the best tools. Most businesses that perform COI tracking in-house benefit from the following:

COI Tracking Excel Template

Managing COI Tracking In-House vs. Working With a Provider

Group of business people and software developers working as a team in front of a computerFor many small businesses, tracking COIs in-house may be the only viable option from a financial perspective—especially if the company only regularly works with a limited number of contractors or vendors. 

However, as organizations grow in scale, the question for most business owners and leaders changes from “How can I track COIs in-house?” to “Is it better to outsource the service or maintain an internal team to track COIs?” 

Ultimately, that decision will come down to a fairly small set of factors:

  • The size of your company 
  • The availability of internal resources
  • Knowledge and/or training of employees
  • The number of vendors and contractors you work with
  • The financial risks your vendors and contractors pose

Rule of thumb: If your solution puts your liability fears to rest, then it’s right for the time being. If something changes to reignite those fears, it may be time to consider an alternative.

Finding the Best COI Tracking Solution

If you decide that it’s better to outsource tracking COIs, several providers offer solutions at a variety of price points. When evaluating these providers, here are a few useful questions to ask both yourself and any potential vendor:

  • Do I need a software-only or full-service solution?
  • What does “full-service” include?
  • Will this process be managed by professional COI analysts with insurance expertise?
  • Does this solution have international capabilities?
  • Can this solution scale with my business?

THE BCS DIFFERENCE

BCS: Your COI Tracking Solution

We designed the BCS App with input from some of the most influential risk management teams in the world to remedy the top COI tracking concerns.

Among other features, it provides real-time compliance status updates and is easily customized to reflect your company’s unique compliance requirements, no matter how complex.

 

The risks that lie beneath the surface

The Risks Beneath the Surface

Beyond just tracking certificates, BCS delves into the real details of insurance coverage to unmask exclusions that could otherwise put your organization at risk.

An extension of your teams

An Extension of Your Team

Most solutions try to put a cap on this, but our compliance analysts handle all the inbound/outbound vendor support necessary to get them compliant.

Advanced analytics

Advanced Analytics

Our advanced analytics tools provide the insight you need to make the best risk management decisions in real time.

Certificate of Insurance Tracking, Safety Pre-Qualification, Regulatory Screening, and Document ManagementBCS has the perfect solution for your business.

BCS has the perfect solution for your business.