Do I Need to Verify That My Third Parties Have Insurance?

Do I Need to Verify That My Third Parties Have Insurance?

If you own a business of any size, chances are that you deal with third parties (3Ps). So what happens when one of those 3Ps does something (or doesn’t do something) that causes something to go wrong with a product or service, or data isn’t protected? Your customers are likely to make claims against you.

That’s where verifying insurance for 3Ps comes in. Third parties are a huge risk because you can’t screen, train and insure them like you can your employees. That’s why you need them to carry insurance, and make sure you’re included as an insured party (also known as Additional Insured), and that the coverage stays in active for as long as you’re engaged with them.

An Evident survey of the state of 3P insurance verification in 2022 revealed that 75% of third-party vendors lack adequate insurance coverage. That leaves enterprises exposed to billions of dollars in hidden risk exposure and if you’re not properly verifying, there’s a high likelihood you’re putting your business at risk when it comes to how your 3Ps are insured.

What Does Third-Party Risk Actually Mean?

Third-party risk is the exposure your business has to losses which could result from things like operational disruption, a data breach, or a physical accident caused by an organization that’s external to your business. Basically, that’s anyone you have a partnership or agreement with to provide products or services. Losses can take many shapes and forms and can stem from any vendor, supplier, franchise, contractor, or other external partner in your business’ ecosystem.

Every time you engage a 3P, you introduce opportunities for unwanted exposure to additional risk. Common examples include an accident on your company’s property due to a 3P or having one of your products recalled because of negligence on a vendor’s part. The only surefire way to protect your business when these things happen is through proper insurance verification.

So How, Exactly, Do You Verify Insurance?

Insurance verification is pretty simple in concept. It’s the process of verifying that someone else has insurance that will cover you if they cause a loss that affects you. Typically, your company is going to have insurance requirements that are part of a contract with any other business you’re working with. Those requirements should reflect the risk that you think a 3P company might pose to yours.

In most cases, the 3P will review those requirements and send back proof that they meet them. The most common way of doing that involves using a certificate of insurance, or a COI. A COI is just a summary of someone’s insurance coverages.

COIs are a simple safeguard for businesses to help them avoid risks that naturally arise from working with 3Ps. COIs become even more important when a company is working with multiple partners. Each of your 3Ps should be carrying their own coverage and verifying policies from their respective vendors and contractors.

You can verify insurance manually, but it is a truly cumbersome process that can require a ton of work hours. A more efficient option is to use technology to automate and track your 3Ps’ adherence to your insurance requirements.

Using Technology for Easier 3P Insurance Verification

Evident fully-digital, fully-automated insurance verification makes it easier for businesses of all sizes to ensure your 3Ps are carrying the necessary amount of coverage to safely do business with you. If you use Evident, you or your risk managers no longer have to manually review COIs. Instead, you can automatically extract the data you need from a static document and use that data to determine whether you will contract a third party and for how long.

Even more, you need to continuously verify that the COIs you’ve collected continue to be valid, up-to-date, and authoritative for the entire time you’re engaging a 3P. Evident’s solution provides continuous follow-up with your 3Ps, including certificate collection, verification, and ongoing monitoring, all with complete transparency so you or your risk managers can be aware of and understand program gaps.

The Bottom Line

Verifying your 3Ps’ insurance is crucial to limiting your company’s exposure risk if something goes wrong – and we all know that things will go wrong from time to time. And while you can verify insurance manually, a more efficient and comprehensive solution is available. Automating your 3P insurance verification can save you time, money, and frustration — and ultimately help you sleep better at night, knowing your company is protected.

See what Evident can do for your business today.