We tend to naturally avoid, or at least delay, doing those things we would rather not, and the process of creating and managing an insurance compliance program might certainly be one example looked upon with fear and loathing by risk managers. Data must be collected and reviewed, processes must be developed and systematized, resources have to be allocated and time and money are always a factor. Nevertheless, the consequences of avoidance leave the organization exposed to unnecessary risk resulting from the actions of third-parties over whom you have limited control.
The immediate benefit of verifying contractual compliance are obvious: risk transfer and reduced liability. This is, after all the central point of the exercise. But let's not stop there. Here are a few more intangible benefits worth remembering:
Nothing shines a light on a topic better than talking about it, particularly when it's a subject not immediately apparent. If you currently have no procedures or policies governing the collection, review and tracking of certificates of insurance, simply beginning the discussion will unearth a wealth of discovery. This will lead to improvement (or creation) of business processes and controls in areas tangential to risk management but necessary for implementation and maintenance of the compliance program.
Requirements review and streamlining.
"Compliance" is inherently determined by evaluation of a set of conditions being met. All too often we find the most difficult part of establishing a COI tracking program is determining what the actual requirements are that must be evaluated and monitored. Often, tenant and vendor contracts are one-offs, prepared for a particular purpose, sometimes by different parts of the organization who may not communicate well. Instituting an insurance compliance program will force a review of current contract requirements and reveal inconsistencies (and sometimes errors) in existing methods and assumptions. The importance of this cannot be overstated.
Any insurance compliance program necessitates the collection and evaluation of documents. Prior casual and incomplete practices are replaced with formalized processes to ensure orderly notification to insureds (tenants, vendors) with specific information on what is to be supplied. Documentation will not only be more complete, it will be current and more accurately reflect the present state of actual insurance coverage carried by the insured.
The development of metrics.
Now that you know what must be collected and evaluated, you can measure it. Analysis of insurance data coming in to the organization can not only be properly analyzed, it will provide actionable response resulting in improved risk management and foster internal communication and accountability.
Now that you've built it you own it. Management has expectation that the process they have allocated budget for will now be maintained. Of course, that can be a two-edged sword, but the hardest part is over. And the good news is there are fallbacks to internal management; professional assistance for COI tracking and management is always an option. Either way, you're now in the game and the work must get done.
As you can see, the benefits of insurance compliance verification extend to elements of the organization in ways not immediately obvious. Effectively communicating that value to management can facilitate approval of this critical risk control program.
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