The CMS Blog: Insurance Certificates & More

Management of Incoming Certificates of Insurance

Trying to track all of your incoming insurance certificates yourself can be time-consuming and costly. But the consequences of not verifying insurance coverage can be even more expensive. Several questions should be considered when setting compliance standards.

First, what level of compliance will be required? If only high-risk third party verification is required, what definition will apply? It is important to determine which vendors are high-risk and develop processes accordingly.

Once the level of compliance has been determined, you will make a decision on who will be responsible for tracking incoming insurance certificates. Will there be one central contact within the company to receive all certificates, or will the department who contracts with the vendor be responsible? You may consider having the risk management department handle all high-risk third parties, while other internal departments handle more routine insurance certificates.

It is important to provide adequate training to the person tracking the certificates, so they can determine if the vendor is in compliance with company standards.

It the volume of tracked certificates is high, consider an insurance certificate software like Certs Made Simple (CMS).

Proactive Certificate Tracking

Risk management, specifically vendor compliance, is of high importance to companies in all industries. Any company that employs vendors carries risk until proper certificates of insurance (COI’s) are provided. Once provided, reviewed, and approved, vendors can be determined in compliance and business can proceed. Sounds simple enough; yet many companies go through periods where they have gaps in their compliance, inviting a large amount of risk. This is where CMS comes in.

Our certificate of insurance software helps risk managers take a proactive stance on risk management. It helps organizations from a variety of industries, from TPAs and waste management to municipalities and universities, get to a point where gaps in compliance cease to occur. Certs Made Simple (CMS) completely automates the process of sending notifications to vendors about their certificates of insurance nearing expiration. For example, a notification e-mail can be set up to send automatically 60, 30, and then 15 days before the insurance certificate expires. These, along with other settings, can be customized to fit the criteria for each company, vendor or project.  This allows users to adapt the software to align with their current vendor compliance management process instead of adapting their process to the software.

The setbacks companies can incur from having non-compliant vendors can be devastating, specifically if an insurance claim is filed against a vendor. Without the proper coverage, the responsibility for an incident is shifted from the vendor to the company, which can become a huge problem, monetarily and reputationally. Non-compliance can also stall business operations between two companies. A day wasted has opportunity costs associated with the businesses not proceeding. By using Certs Made Simple (CMS), companies can have a proactive approach to their compliance and risk management needs; saving them time and money along the way.

Considerations for Insurance Certificate Issuance

Many large companies have secured the right to issue their own insurance certificates. The protocols for issuing certificates will vary between carriers and lines of coverage. Most casualty coverages can be issued on the standard form, while property certificates may be manuscripted.

Most brokers and carriers will require that the insured indemnify them for any claims resulting from an error in issuing the certificate. This indemnification can be limited, however, to a specified time frame.

In order to issue the insurance certificates, the insured will need access to a software package such as Certs Made Simple (CMS).  Insureds will also need to send copies of certificates to insurers on a periodic basis. These submissions may be quarterly, annually, or more frequently if needed.

In issuing certificates, an insured must always use caution when providing evidence of special provisions or endorsements. When showing additional insureds or loss payees, be sure to limit this status to the relevant event, location, property, etc. Also, the policy will need to be reviewed for the structure to cover additional insureds. Consultation with an expert, such as those at CMS, is suggested.

The importance of insurance certificate management

Ask any CFO or risk management professional and they’ll tell you just how much sleep they lose thinking of the financial impact that claims and lawsuits can have on their business. And as companies continue to try to reduce costs by trimming coverages, the risk of non-compliant vendors, tenants, and subcontractors, suppliers continues to grow.

If you are collecting insurance certificates just to confirm they were received, you have no guarantee that your requirements are being met. Tracking and managing certificates of insurance to confirm all limits, endorsements, and insurance requirements are in place allows your business to transfer costly claims and other exposures to your vendors.

CMS provides one of the original, most respected solutions for certificate management. We have more insurance certificate management experience than any of our competitors.

Insurance Certificate Regulations

Millions are prepared annually. People ask for them, people prepare them. They are so much a part of the business environment that people take them for granted. But like anything that is taken for granted, carelessness and indiscretion often follow. And then comes liability and state regulation.

This is the state of affairs for certificates of insurance—those documents that purport to describe the particulars of a party’s existing insurance coverage. In the last four years alone, 44 states have enacted legislation, adopted rules or issued clarifying bulletins through their departments of insurance addressing certificates of insurance. All but five states now have laws, regulations or guidance addressing them.

While not all states regulate certificates the same way, enough principles remain in common to be suitable guides for knowing what not to do with a certificate. Yet misunderstandings still arise. For instance, many certificate requestors have thought they can require a policyholder, through a certificate of insurance, to advise them of any changes to, or cancellation of, the policy. Naturally, the requestor has a valid concern. If a party wishes to know whether insurance coverage is in place, it very reasonably would wish to know if that coverage will change or cease. But a certificate is not the document to address that concern. If a party wishes to be notified of changes in the policy or cancellation notices, the party should obtain an endorsement from the insurance company to that effect. For this reason, many states warn that a certificate cannot promise policy notices; the certificate holder gets what the insurance policy says the holder gets. As the form states: “Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”

If one is not using a broker, the risk manager should ensure that all individuals preparing certificates are using the most current form and that they are not altering it in any way. Examples include, altering the form to reflect that: 1) a contracting party will receive advance notice of any change to, or cancellation of, the insurance policy; 2) the company will indemnify the other party for general liability arising from the contract; 3) the insurance coverage referenced in the certificate will be provided according to the contract between the parties; or 4) language that says the certificate confers no rights to insurance will be deleted.

In short, do not mess with the forms. Prepare them accurately and let them speak for themselves. Anything more can result in trouble.

The Benefits of Insurance Certificate Tracking

Certificate of insurance tracking and management can keep you better informed, reduce filing and paper, and improve accuracy. Enjoy decreased workloads, increased compliance, anytime access and a host of benefits from vendor risk management and credentialing to state of the art certificate of insurance tracking software.

  • Automate and centralize the administration of the third-party insurance compliance
  • Evaluate certificates based on contract requirements
  • Review additional insured endorsements where required
  • Monitor compliance, including follow-up for non-compliant vendors
  • Request renewal certificates prior to expiration
  • Generate compliancy status reports
  • Document history of certificate status and review process
  • Store insurance documents electronically for easy retrieval

View a full listing of Benefits here.

What is a Certificate of Insurance?

A certificate of insurance is a document used to provide information on specific insurance coverage. The certificate provides “proof” of the insurance and usually contains information on types and limits of coverage, insurance company, policy number, named insured, and the policies’ effective periods.

A certificate of insurance is often demanded in situations where liability and large losses are a concern. For example, a company wishes to hire a driver from a temp agency. The company will most likely ask the agency to show them a certificate of insurance that proves that certain liabilities will be covered by insurance in the event the driver causes problems, such as incurring damages from driving the company’s vehicles.

Policyholders may request a certificate of insurance for many reasons. Some of the more common are:

  • They are a tenant, and a building owner is requesting information about the existence of liability insurance coverage
  • They are the mortgagor of a building, and are requesting information about the existence of property insurance coverage upon closing or renewal
  • They leased equipment and the owner of equipment wants information about the existence of property insurance coverage while equipment is in possession of the client
  • They need evidence of workers compensation insurance in order to obtain a contract

Such requirements are particularly common in construction contracts with large contractors, government entities, and major corporations. For contracting purposes, insureds are required to name or schedule specified persons or organizations onto their insurance policies. Such requests are accommodated by adding endorsements to the insurance policies. Collecting actual copies of the required insurance endorsements along with the certificate of insurance is essential, as certificates generally do not alter, extend or afford coverage to any party other than the named insured(s).

Certificates are simply snapshots of basic policy coverages and limits at the time of issuance of the certificate. Certificates cannot modify coverages or change the terms of the insurance contract.

When Do You Use a Certificate of Liability Insurance?

Certificates of Liability Insurance can be used to demonstrate proof of coverage, which is often a key step in securing a new contract.

For example: Imagine you’re about to close a contract with a new client. However, the contract requires you to have a Certificate of Liability Insurance that shows you have $1 million in Errors and Omissions Insurance before they’ll sign any paperwork.  If you already have an E&O policy with a $1 million limit, you can request a Certificate of Insurance from your provider.

A client may ask you to provide a Certificate of Liability Insurance for a number of reasons, including…

  1. Their insurance provider requires proof of coverage. Many insurance providers require proof of insurance for all contractors and business partners of their policyholders. Your Certificate of Liability Insurance serves as proof of your coverage.
  2. They want reassurance that you’re covered. Even if their insurance providers don’t require proof of coverage, your clients may want to know you have business insurance. Why? Because when you have a policy in place, it means you have the financial backing to compensate them for losses if anything goes wrong.
  3. They want all your insurance information in one place. Certificates of Liability Insurance are concise and information-dense. Your clients can easily find any information about your coverage they need without combing through pages of paperwork.

Insurance certificates simplify the process of signing contracts. They provide a quick way for businesses to exchange important information about their coverage in an easy-to-read document they can keep on file.

Certificates of Liability Insurance are useful because they allow contractors, freelancers, and small-business owners to demonstrate proof of insurance and share coverage information with clients through a single-page document rather than an entire insurance policy.