A leading authority on transfer of risk emphasizes a two-prong attack: contractual obligation and verification of requried coverage. The professionals at myCOI have the tools to make sure all your bases are covered.
Jessica Gray is a Principal + Owner of Parallel Risk Advisors, an insurance brokerage and advisory firm focusing exclusively on the Commercial Real Estate Industry. With a nationwide client list including several heavy hitters of the industry, Jessica and her team at Parallel Risk Advisors are truly a foremost authority on the importance of risk transfer and how to do it effectively. Click here to learn more about Parallel Risk Advisors, or contact Jessica directly at jgray@parallelriskadvisors.com.
Out of the many facets of risk management an organization must consider, the successful transfer of risk to others is among the most important and the most misunderstood. To be effective, transfer of risk requires a two-pronged attack: there must be a contractual obligation to transfer risk, and the existence of the required coverage must be verified.
Even large sophisticated firms believe that if they have a certificate of insurance in hand, confirming limits and obligations, they are protected over the years. A certificate of insurance is simply a piece of paper, and, in the unfortunate event of a claim, the insurance carrier will look to the contractual obligations to see what obligation they have (if any) to respond to the claim whether on behalf of their insured, or for any other party.
Transfer of Risk Continuum
Even for those who realize that the key to the transfer of risk is the contractual obligation to do so, it’s important to realize that it doesn’t end there. Yes, a clear contractual requirement is the cornerstone of the successful transfer of risk, but the next step of verification is just as key. There have been numerous situations over the years where peeling away the layers of the onion has uncovered non-compliance issues. Only when verification of even the most detailed negotiated insurance requirements is requested, can it be discovered that the insured is not in compliance. And in our capacity as broker and consultant, we encounter these situations constantly.
Hardly ever do non-compliance situations arise by someone saying, “Sorry. We don’t have that coverage.” These are usually not discovered until the request is made to issue the appropriate insurance documents – additional insured endorsements, confirmation of terrorism on all layers, etc. We recently encountered a situation where the party negotiating the terms agreed that terrorism was being provided on all policies only to discover, when the broker was asked to produce documentation confirming such, that terrorism was only included on the primary GL policy.
One of the most commonly encountered issues is the notice of cancellation (NOC) to 3rd parties. The certificate will state a “30/10 NOC” (30 day NOC or 10 day NOC if the policy is cancelled due to non-payment). We will then follow up for confirmation that this notice applies to the interested 3rd party (landlord, project owner, lender.) At that point, a copy of the policy provision or endorsement is provided, and, more often than not, the NOC that has been referred to is only applicable to the 1st Named Insured.
Even more problematic are additional insured protections. Confirmation via policy forms and endorsements is almost always necessary to confirm that additional insured status is provided on a primary and non-contributory basis, or that the status applies for completed operations, or that the status applies for a party with whom there is not a direct contract (think a lower-tier subcontractor providing AI protection for the General Contractor.)
By no means am I implying that insureds lie just to get the deal done! Of course, there are bad apples out there, but with the number of parties involved in the insurance procurement and verification process, especially on large programs, even the most conscientious insured or broker isn’t aware of every contractual requirement at all times. They have the responsibility for the structure of a program that can cover hundreds of properties, projects, and additional interested parties. It’s virtually impossible for them to have all of those particulars in mind when putting together a program. The responsibility falls on the interested party to verify that the requisite coverages are there.
Now, how can you effectively monitor compliance when you don’t have the in-house man-power?
myCOI is a cloud-based software solution that exists to assist in the critical tasks of managing certificates of insurance, confirming coverages, and protecting your company against uninsured or underinsured claims, costly litigation and failed audits. The software and certificate tracking services are combined into an easy-to-use program developed and supported by a team of insurance professionals and built on a foundation of insurance industry logic to automate the COI communication process and ensure you remain protected.