June 1, 2017

Certificates of Insurance Could Be Putting You at Risk – And You Might Not Even Know It

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Aren’t certificates of insurance supposed to help protect your organization and not hurt it? Yes! However, COIs could be putting you at risk if they’re the only documents your team is relying on to ensure compliance of your third party vendors and subcontractors.

Unfortunately, many organizations believe that the COIs they receive are fully accurate and they don’t double check the corresponding endorsements to make sure the information is valid, current, and up to your organization’s compliance requirements.

Certificates Could Be Putting Your Organization At Risk

Whether you realize it or not, a certificate of insurance—the document that is supposed to accurately reflect coverage and limits—has no checks and balances. Here are 4 of the most common issues with certificates:

1. Fraudulent COIs and How They Are Issued

Typically, an organization requests a certificate directly from an insurance company rather than through a vendor or contractor. According to Investopedia, the client should confirm the name of the insured on the certificate is an exact match for the company or contractor being hired. In addition, the client should check the policy coverage dates and ensure they are current. If the policy is set to expire before the job is completed, another certificate should be obtained at the policy’s renewal.

In addition, if a third party vendor or subcontractor submitted the COI to your organization rather than the agent, he or she could have created a fraudulent certificate to sneak by without coverage, or with less coverage than required. Unfortunately, these fraudulent COIs are hard to spot and are more common than you might think.

2. Free-Form Typing Can Cause Errors

Even if not intentional, it is all too easy for the insurance agency administrator to free form an error in the “Description of Operations” box. Because there are no checks and balances in the agency management system, this could put your organization at significant risk. The information listed on the forms is what the court will use in any claims, regardless of what should have been listed.

3. Those Creating COIs Are Not Required To Have a License

Along with the above point, the individual doing the administration work on policies is likely an employee who doesn’t have the insurance background necessary to be able to ensure that everything on the certificate is actually correct. He or she isn’t required to hold an insurance license, which means they are unlikely to understand all of the terms and implications for an incorrect word or term, leaving your organization exposed to even more risk.

4. COIs Are Only a Snapshot in Time

A certificate of insurance is simply a representation of the single point in time that it is issued by the party providing the evidence of insurance to the certificate holder. IRMI says that, within the custom and practice in the insurance industry, a certificate of insurance should accurately reflect the insurance policies in place on the date the insurance certificate is issued. “However, summarizing an insurance policy that could be hundreds of pages long into a single check-off box necessarily leaves a lot of details on the insurance policies purchased undisclosed in the certificate of insurance.”

COIs Are Not Enough

It’s simply not enough to check the boxes on collecting and reviewing the certificate without reviewing the other supporting documents, such as the additional insured and waiver of subrogation endorsements.

Don’t wait until it’s too late to determine if there are gaps in coverage. It is especially important to ensure that adequate coverage limits and acceptable coverage for completed operations is in place. For your team on the front lines, consider all of these items as part of an overall risk management plan.

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