The State of Third-Party Insurance Verification – Research Report
July 13, 2021
Our recent data report outlined eight key steps to help businesses implement better third-party insurance verification processes, with step number 5 being the actual evaluation of a certificate of insurance (COI) to confirm that it meets the business’ requirements. See all eight steps listed in our infographic.
While it may seem like a bit too late in the sequence to be doing the actual work of verifying coverage, it’s actually right where it belongs. Steps 1 through 4 establish a user-centric verification framework that clearly outlines expectations and insurance requirements. These critical steps ensure third-party vendors understand what’s being asked of them and help them reach the approval stage faster.
If businesses aren’t doing any of the first four steps properly, third parties are more likely to stall in the insurance verification process, and it’s less likely they’ll be able to maintain compliance with the company’s insurance requirements.
If a company is experiencing lower-than-average compliance rates and are losing desirable third-party partners, they’ll need to take a long, hard look at their requirements and weigh the pros and cons of having too-rigid third-party insurance standards. Ideally, compliance requirements should be commensurate with the risk that a vendor presents. More often, an extensive list of uniform requirements focused on reducing every type of risk is created without consideration for a third-party vendor’s ability to meet them.
Companies should strike the right balance between requiring their vendors to carry adequate coverage and demonstrating compliance. This approach incorporates direction from legal and insurance teams, and also supports seamless business operations.
Clearly (and regularly) communicating both process and expectations is the best way to ensure that a third-party vendor has received and understands a company’s COI verification requests, but it’s often difficult to do this successfully. Based on the data, maintaining lists and keeping personnel and contact details up-to-date is also challenging.
If a company has achievable insurance requirements and still doesn’t see an uptick in compliance rates, it’s usually due to a lack of effective and/or consistent communication for COI requests. This type of regular communication is also important because it informs vendors that the company is committed to the COI verification program for compliance purposes — they’re not going to just send a one-off email asking for coverage details and then never reach out again if they don’t get a response.
An insurance broker is an important participant in the COI verification process. Their role involves interpreting a business’ insurance requirements, reacquainting themselves with the policies they placed for the vendor, and creating a COI that demonstrates how the vendor’s policies meets those requirements.
General liability, property damage, and other conventional coverage types are usually straightforward to verify, whereas the more esoteric lines like product liability, employee dishonesty, and other crime coverages can be more difficult. Endorsements or exclusions modifying coverage add another layer of complexity.
Complex legalese language often requires the expert eye of an insurance professional, risk manager, and/or lawyer to interpret correctly. All of these considerations can make the act of creating a COI that adequately demonstrates compliance challenging for third-party vendors.
The simple process of treating insurance brokers and agents like partners can go a long way in getting your vendors verified so you can onboard them faster! Successful tactics for this might include: dedicated communications to brokers, time-saving programs to aggregate efforts across multiple insured vendors, and additional integration efforts to keep brokers (and agents) involved and informed.
This seems like a simple and logical step that could be rolled into Step 5 — the act of verifying vendor insurance – but it shouldn’t be, because the communication part of the process matters. It’s important that companies evaluate the communication methods they’re using to send and receive COI requests from the vendor/broker, as they can easily add unnecessary friction that results in fewer responses to the COI request.
Simplifying the way a broker provides their client with a completed COI is a good start. An even better verification program enables a broker to communicate directly with the requesting company while keeping their client in the loop throughout the process.
Companies should think of themselves as the ultimate beneficiary of the verification process. Therefore, they should take care of their vendors and their vendors’ insurance agents and brokers like they would their own customers by providing clear, timely updates and proactively offering to help if a vendor stalls during the verification process, much like how an ecommerce merchant treats cart abandonment.
Now that you’ve completed these four steps, you’re ready to verify your third party’s COI. At this point in the verification process, you’ll analyze and examine their proof of insurance, determine their compliance, and prioritize risk.