How many subcontractors, vendors or service providers does your company work with? 10? 90? 1,900?
No matter the number, if you hire other businesses to perform services for you, you know how important it is to get proof of insurance from them before they start work for you. If a vendor doesn’t have the right coverage, your organization assumes that risk.
Many companies manually collect Certificates of Insurance and track compliance in-house. This takes considerable time and organization to get right. Whether you’re just starting to build out your COI tracking process or you already have one in place, these seven steps can help ensure you’re covering all your bases when it comes to transferring risk to those you hire.
1. Determine your insurance requirements
Managing the risk associated with hiring vendors starts with nailing down the insurance coverage you’ll require. For most companies, these requirements will vary by the risk level of each partner. For example, you probably won’t ask for the same coverage from a caterer that you will from an electrician, so setting up two separate requirement levels may be appropriate.
If you’re brand new to managing hired partners’ insurance, a conversation with your insurance agent is a great place to start when deciding which policies and limits you’ll require for each type of vendor.
If you already have your requirements documented, be sure to regularly review them. Sometimes companies stop enforcing certain requirements. Your relationship with vendors might have changed over time. Regular reviews of your requirements will ensure your vendor agreements and proof of insurance are consistent across the board.
2. Collect COIs from your service partners
Once your insurance requirements are solidified, it’s time to communicate those requirements with your partners and collect proof of insurance. This proof is usually provided as a Certificate of Insurance, also known as an ACORD 25 form.
Your service providers have a different COI for each organization that hires them. They’ll usually forward your request to their agent to generate a new certificate with your information in the Certificate Holder section of the form.
It’s important to include specific details in your request, such as:
- Types of policies required
- Limits required on each policy
- Special endorsements like additional insured or subrogation waiver
- Your business name and address as they should appear on the COI
Collecting COIs from your vendors is a task that requires significant time from your team. Without clear communication and proper incentive, your partner may not submit the correct documentation upon your first request. You might need to follow up more than once if they or their insurance agent drags their feet.
Having a compliant certificate on file is crucial to protect your business, so you must stay on top of following up. If the vendor begins work for you without the COI, you could be taking on extra risk. You can set calendar reminders to spend time every day or weekly reaching out to vendors and tracking down certificates.
3. Compare the coverage with your requirements
When you receive a COI from a vendor, the job isn’t done. Simply having a certificate on file isn’t enough. You must make sure the policies are compliant with your company’s insurance requirements.
This step requires a moderate level of insurance knowledge from you or a team member. Go through the documents your vendor provided and find each policy’s details. Then check them against your requirements.
The person doing your COI reviews will quickly become familiar with the nuances of a standard ACORD 25 form. If a vendor submits other kinds of documents, the review becomes more complex. It can be challenging to assess the policy’s compliance.
If you have any questions about the details on the certificate, you can always reach out to the insurance agent or carrier. These two parties are usually identified on the insurance documentation as the "producer" and the "insurer."
4. Work to achieve compliance for noncompliant partners
If you discover during verification that a vendor or subcontractor does not meet your requirements, you have a few options. You can:
- Choose to work with the vendor despite noncompliance
- Choose not to work with that vendor
- Work with the vendor to achieve compliance
The first option, as we’ve covered, puts your business at risk. The second option might be easiest for businesses with hundreds or even thousands of vendors. You can just award the job to another verified partner.
Many businesses value their vendor relationships enough to try the third option. This could be as straightforward as letting the vendor know where their coverage fell short and requesting an updated COI. However, understand that this will usually mean a premium increase for the vendor, so it may not be their favorite thing to do. Making sure they get the appropriate coverage will likely take some back-and-forth.
For this reason, it’s essential to request COIs with plenty of time before work is set to begin. Or better yet, keep a compliant certificate on file for every partner.
5. Organize insurance documents for future reference
Your insurance carrier may occasionally perform an audit on your account to ensure your policies are adequate for the risk you’re actually taking on. If you’re in the construction industry, it’s common to be audited every year as most companies work with many subcontractors.
For insurance audit purposes and for your own reference, it’s vital to store your hired parties’ COIs in an organized way. You should be able to easily find current and historical documentation for any given vendor.
This will also help minimize the time you spend looking for existing documents at the beginning of new projects. For example, let’s say you completed a project with Excellent Electric in February. It’s now August, and you want to bring them back on site for a new project. Is the COI on file still valid? Maybe, but it’s not safe to assume. Your insurance tracking system should enable you to quickly find out.
6. Track your vendor compliance data
If you’re tracking more than about 10 partners, you’ll also want some kind of dashboard to provide a quick compliance summary. Many companies use a spreadsheet for this purpose.
Your tracking dashboard should show the following for each vendor:
- Vendor and agent’s contact information
- Requirement category (and you might choose to list the requirements for each category to make the verification process easier)
- Coverage shown on the certificate you received
- Whether the vendor is compliant or noncompliant
- Next policy expiration date
7. Set reminders to reverify each policy at renewal
As you know, most insurance policies expire a year after their effective date. This means you’ll need to repeat the verification process for each policy before it expires. To manage this, many companies use calendar reminders or set notifications in accounting software such as QuickBooks.
It might be tempting to assume a vendor is compliant this year if they were last year. However, this approach can backfire. One study showed that nearly 10% of previously-compliant vendors no longer met requirements when reverified. This could be because their policy details changed, the policy was non-renewed, or your requirements changed.
Whatever the cause, a noncompliant vendor means more risk for your company, so it’s important to reverify every policy every year.
And remember, some vendors might have multiple policies on file. The ACORD 25 form you received from their agent could list policies with different expiration dates. Be sure to check the "Policy Exp" column of the certificate and note the expiration for each.
Track and verify COIs with confidence
Tracking insurance for your vendors and subcontractors is an important part of your company’s risk management strategy. If you choose to keep the process in-house, follow these seven steps to ensure you’re effectively transferring risk to the service providers you hire.
If doing all this in-house seems like a lot of work, HoundDog’s AI-powered technology can automate the whole process for you, from requesting the COI to automatically reverifying upon renewal.
Outsourcing these tasks can free your employees up to focus on higher-value work within your organization. It can also help you improve compliance and reduce risk by minimizing human error throughout the process.
>> Want to see how it works? Schedule a demo with one of our experts today.
