Choosing an insurance compliance vendor - Part I - Expertise

It is not surprising you may wish to consider off-loading the task of insurance compliance verification and management. The work is challenging, never-ending and thankless. Doing it poorly leaves the business exposed (sometimes unwittingly) to unnecessary third-party risk. The last thing you want is liability for a claim you could have otherwise avoided.

If internal resources are not available it makes sense to look outside for assistance. But before you take the leap into the arms of a firm who purports to solve all your Certificate of Insurance (COI) woes, it would be helpful to have a checklist. A little due diligence will serve you well and result in a better-informed decision in this critically important business process. Over the next few weeks we will discuss the various elements that must be in place for a successful outsourcing program for tracking and managing contractual insurance compliance.

Let's start at the beginning. There is nothing more important when entrusting your liability exposure to a third-party than its expertise. Above all else, this is paramount. The exposure is too great to allow anyone other than a subject matter expert decide if risk has been properly transferred to the third-parties with whom you contract (tenants, vendors, contractors, etc.).

Insurance documents are complex, and some rules vary from state to state. At times endorsements to the policy, or the actual insurance policy itself, must be collected and examined to ensure proper language is in place. At other times, certain insurance carriers may be inappropriate for a particular use case as they contain automatic exclusions that negate your protection. These are not things casually learned. They can be easy to miss, leading to errors in processing and failure to mitigate risk.

Another area of breakdown involves numbers. The seemingly simple task of examining coverage limits can be complicated by the correct, or incorrect application of excess coverages. You need to know how insurance arithmetic works and where it can be applied. You need to know when workers' compensation waivers are applicable and when they are not. You need to understand the complex issues surrounding Additional Insureds, Description of Ops language, and so on. In other words, you need to know a lot about a lot.

Bottom line – this is not work for amateurs. So, how do you know you're talking to the right outsourcing provider?

First, you must determine the professionalism of the group. Think of them as an extension of your insurance team. Would you buy insurance from an unlicensed broker? Of course not; in fact, you can't. So why would you entrust your insurance risk transfer to someone who wasn't licensed? Shouldn't the insurance compliance verification team - the team you rely on to keep you away from liability from third-party claims - have the same or greater level of knowledge as an insurance broker? Actually, why aren't they a broker? Specifically, why aren't they a state-licensed Property and Casualty broker? They should be. They must be.

Moreover, as a practical matter it's not enough that there be one insurance person on the outsourced team. It would be impossible for that person to know everything, to see everything, to look at every insurance document that matters to you. The answer is obvious - the person handling your account is the one that matters most. Who are they? You have entrusted them with a solemn responsibility – to protect you. They cannot do that without the requisite skills to do the job correctly. Would you rely on a nurse when you need a doctor?

The fallout from working with unlicensed account management is not limited to increased risk exposure. The hidden consequence of lack of expertise will further lead to a breakdown in the ability of the outsourced service provider to offer the expected level of insurance compliance decision-making on your behalf. Work will inevitably be pushed back on you, the client. This result is the exact opposite of what you signed up for. Unfortunately, it is a common complaint in the industry and it happens all the time. Beware.

So, the first consideration when outsourcing your insurance compliance program is simple, and critical - your Account Manager must be a licensed P&C broker. You need a highly educated specialist. The work is too complicated and the risk is too great.

If they cannot pass this basic requirement, look elsewhere.