Ask an Insurance Expert: What is Insurance Verification?
April 12, 2022
Hi, this is Bob with Evident, and today we’re going to answer the question “What is insurance verification?”
Insurance verification is conceptually simple. It’s the process of verifying that someone else has insurance that will cover you if they cause a loss that affects you that typically, your company is going to have insurance requirements that are part of a contract with another business you’re working with. And that’s going to reflect the risk that you think that that company poses to yours. So it’s kind of a type of a minimum coverage required to protect you. And that other company will review those requirements and send back proof that they meet them and they’re most commonly going to do that. Using a certificate of insurance or a COI. A COI is just a summary of someone else’s insurance coverages. It’s a one or two page document from a CT or ISO, or it can be printed out and insurers own proprietary format.
It’ll show things like the insurance name, which you want to make sure it matches the business that you’re dealing with the producer, the carriers who issued the policies, and the certificate holder, that’s the person who’s asking for the proof from – you guessed it – you. It’ll summarize the coverage types like general liability or auto liability, it will list the limits for those policies, and it may have other information you’ve requested, such as special endorsements to an insurance policy. Now, sometimes people will send over all sorts of proofs of insurance things like billing statements, payment receipts, declarations pages, or the entire insurance policy.
If that’s you, you don’t need to do that. You’re sending more information than you need to. And it’s probably not even what your business partner wants. You can call your agent, you can call your broker or a carrier and for the request from that business partner, and they’ll issue a COI that meets those requirements if you have that coverage. So once you have the COI now what traditionally you’ll take that COI and you’ll go line by line, and you’ll look at every field that was provided to you and you’ll compare that to your minimum requirements and you’ll make sure that it’s at least meets them it hasn’t been left blank. If it’s compliant, great. You don’t have to do anything else. If not, you have to get on the phone or send an email and calm that person until they get it right.
Now this is a cumbersome process, and without technology to help automate and track compliance. It can be really tough to do well especially when you have hundreds or thousands of these things you have to chase every year. It doesn’t help that COIs are a bunch of PDFs, so you can’t do much with them after you’ve manually verified them unless you actually take that information somewhere else and migrate it so you can actually track it. And while COIs are regulated by every state, they’re not legally binding documents. They’re not a contract there just for informational purposes only. So if something goes wrong, doesn’t change the coverage of that person has another big problem realize they’re just an indication from a credible source that that insured had coverage at the point in time that the COI was issued.
There’s nothing stopping someone from buying insurance, getting a COI, and then canceling those policies immediately after, or even less than just being able to pay their premiums. So those policies lapse. It’s almost like cashing a check. The money may have been in the bank when the check was given to you, but that doesn’t mean it’s going to be there when you get around to cashing it. With insurance, the policy may have an active active when the COI was issued, and you hope that that policy is still active when a lawsuit occurs, but COIs aren’t going anywhere between now and five years from now. They’re still the primary way that insurance information is conveyed between businesses today.
The industry is exploring new ways to improve the way verification gets done. At Evident, we’ve automated all of the manual processes that go with COIs – things like extracting the information from those PDFs, doing the line by line comparisons and putting the output into a useful format that actually empowers you to manage third party risks and to fix some of the bigger problems with sea lice, for partnering with carriers and producers to get real-time policy information, so you know if something changes about that policy.
Thank you for joining me and have a great day!