Insurance companies are raising premiums, inserting new exclusions and limitations in policies and in many cases canceling coverage for high risk entities. Many of the broad coverage terms that have been available over the last several years are becoming more difficult and costly to obtain. This is a concern for any organization that contracts with third parties (vendors, suppliers, tenants, subcontractors, etc.), especially if that requires additional insured status from their third party relationships.
When the economy is slow and insurance premiums rise, coverage is scaled back or even cancelled by the primary named insured (your vendors, suppliers, tenants, subcontractors, etc.) to save money. As an additional insured, would you know if your third party relationship (vendors, suppliers, tenants, subcontractors, etc.) scaled back or cancelled their insurance coverage exposing you to risk? Would you know if the insurer cancelled the policy due to high risk? Not likely…
In most cases insurers are not obligated to notify additional insured of a cancellation or change in coverage. This is a major risk to your organization. As an additional insured you must perform your own due diligence to protect yourself from liability.
What can you do?
- Have contracts in place with each third party that requires them to notify you in a situation of cancelled or altered coverage
- Determine your risk tolerance and categorize each of your relationships into the appropriate insurance risk tiers
- Get new certificates of insurance from all third parties and confirm they are valid and adequately meet your requirements for that relationship to appropriately protect you from liability
- Demand that your third parties (vendors, contractors, suppliers and tenants) provide the required additional insured coverage specified in your contract or lease or cease to do business with them
- Get copies of appropriate endorsements that confirm your status as additional insured
- Carefully scrutinize the coverage and even request a copy of the actual policies. It is more important than ever to read the fine print (especially exclusions and limitations) to completely understand the coverage that is in place for you as the additional insured and the requirements that need to be met for that risk transfer to occur
- Implement an ongoing program to carefully manage and track all of your third party relationships and their insurance coverage, including ongoing “quarterly” verification that the policies are still active and the coverage is in line with the contract or lease
The task of managing certificates of insurance and protecting yourself from liability is challenging and requires vigilance. This could mean a significant investment in time and resources. If you are having trouble taking on this challenge in-house, myCOI can help you accomplish these objectives with experience and proprietary technology through certificate of insurance tracking and management services.