By Gwenyth Luu, Director – Commercial Lines
Why are certificates of insurance so universally hated by insurance brokers and risk managers alike?
Some insurance professionals would just as soon have their teeth drilled without novocaine than deal with these much-maligned documents. Yet if used properly, they provide value as an important tool in the risk manager’s portfolio.
For the uninitiated, according to Investopedia, a certificate of insurance (COI) is defined as:
“a document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals. More specifically, the document lists the effective date of the policy, the type of insurance coverage purchased and the types and dollar amount of applicable liability.”
The problems arise when people assume that certificates of insurance do more than they actually do. They are not an ironclad guarantee of coverage, but they do provide a baseline from which the risk manager, attorney or business owner needs to do his or her own due diligence. For example, a product liability COI can demonstrate coverage for a supplier that is ordering a particular raw ingredient to be used in the manufacturing process. It shows the manufacturer that the supplier had coverage at the time of its issuance.
The COI contains valuable information about where the insurance was obtained, which broker executed the transaction, the period of time covered by the insurance and the terms and limits of each policy. However, it is not a guarantee of coverage at any particular moment in time. Although insurance was obtained at some point, it is still up to the risk manager or business owner to ensure that the coverage is still valid and will be adequate for the situation at hand. If the risk is considerable, it may be worthwhile to examine the actual policy or obtain additional or more recent documents that demonstrate that the insurance policy is still in effect.
An insurance endorsement is another form of documentation that may be useful in such cases. The endorsement can be used show the addition, termination, exclusion or alteration of coverage in any way. Since endorsements are issued by the original carrier of the insured, they can provide further detail about the exact terms and conditions under which the coverage is valid. Regardless of their particular content, at the very least they should include the name of the insured, the policy number, and the exact dates of coverage.
Certificates of insurance may have their limitations, but they are a great starting point to ensure that you have some sort of documentation to help better manage risk in your day-to-day transactions. From there, you should take reasonable measures to ascertain their validity and relevance—particularly if you are working with a new vendor or are a fledgling company that can’t afford even the smallest mistake.
If you are uncertain about what documentation will provide the assurance you need to feel comfortable with a particular vendor or other party, be sure to call your JGS broker for further assistance. JGS brokers are always available and happy to help determine appropriate coverage for your situation.