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Outsourcing the Headaches of Chasing Down Insurance Certificates

Outsourcing now plays a key role in minimizing the financial risks companies face from the potential of losses due to accidents occurring on their property or injuries resulting from products they have sold. It also reduces the headaches associated with muddling through the process of conveying responsibility to the party who actually caused the loss to occur.

Jeanie Norman, Senior Insurance Manager at Coca-Cola Bottling Co. Consolidated (CCBC), says, “We make every effort to ensure vendors who come on-site have the appropriate levels of insurance, just in case something happens. Otherwise, it could come back to us and be very costly and, depending on the severity, our premium rates might also go up.”

The catalyst for outsourcing this process at CCBC was the need to centralize information so the company could quickly locate certificates of insurance when needed. Prior to outsourcing to Insurance Data Services (IDS), an outsourcing service provider that manages incoming certificates of insurance for its clients, administrative assistants in approximately 65 CCBC sales branches individually tracked the certificates, along with their other primary duties. Norman says it was “a huge relief” to them when CCBC outsourced the work.

CCBC initially provided IDS with a list of all the vendors with whom it does business, such as janitorial services, people who check fire extinguishers, and window washers. IDS then sent notices on behalf of CCBC, asking for the certificates of insurance and providing each vendor with a list of CCBC’s coverage requirements.

“They contact the vendor if there is a deficiency in coverage, and they make sure the certificates are current,” Norman says. “If IDS receives no response from a vendor after several attempts, then it ultimately comes back to my area for a decision on whether to cease doing business with the vendor.” IDS currentlymonitors insurance certificates on approximately 800 vendors for CCBC.

Outsourcing the Legwork

IDS also tracks more than 500 subcontractors and consultants working on the plans to develop land or actually developing land for a client of Grettie Sutton, an independent risk-management consultant for real estate developers. When Sutton formerly worked as a developer’s employee, she recalls searching the Internet for a solution, thinking: “We either need to hire someone to do this all day, or we need to outsource it.”

She continues, “Our clerical people didn’t really understand insurance, so they didn’t know what they should be looking for on the certificates and how to figure out if they met our requirements. Plus, everybody was bogged down and nobody had time to do it. Now, since the legwork is outsourced, we get involved only if we have to make a decision about what to do if somebody fails to get into compliance.”

Sutton says she appreciates the fact that she can pull status reports from IDS’ Web site to see who is not in compliance. She also likes the fact that IDS has a dedicated person and phone number for each client. “When a contractor for one of my clients calls IDS, they know exactly how to handle it, and it looks like they are part of us,” she explains.

The outsourced solution also includes the benefit of IDS maintaining scanned images of all certificates of insurance received, which are then available via a Web site it establishes for each client. Sutton describes a scenario where this becomes particularly valuable.

“A real estate developer might be sued for a development where all the houses have leaky faucets. The developer can take the list of all subcontractors who worked on that job, pull all the scanned certificates from the IDS system, and hand that to the lawyers who will tender all those claims to the subcontractors’ insurance carriers. That takes the developer out of the loop,” Sutton explains.

“Without this solution, the developer would likely need several staff members digging through drawers or boxes of old certificates,” Sutton continues. “If they don’t find a particular certificate, the developer will have to pay that claim. Even if you have the best in-house filing system, trying to pull all these certificates is nearly impossible.”

Paper Chase

Collecting proof of insurance and managing insurance compliance is a time-consuming hassle. Furthermore, there can be disagreement within an organization as to which functional area should “own” this work, says Lee Roth, Vice President of IDS.

“Most corporate risk management or law departments are not adequately staffed to handle this,” states Roth. “Conversely, those at the operational level might be able to handle the high-transaction-volume aspect of this work but often don’t feel comfortable that they possess the insurance knowledge necessary to accurately evaluate coverage information.”

Most organizations have controls to ensure they obtain a compliant certificate of insurance as part of the contracting process when establishing a relationship with a new subcontractor, vendor, or tenant. However, as Roth points out, they often don’t have mechanisms in place to follow up to make sure new evidence of coverage is received upon expiration of the previously verified coverage, and also that the new coverage meets the contractual terms.

In addition, case law has changed how insurance coverage is extended to third-party additional insureds over the past few years. This change has complicated insurance-compliance management.

IDS, headquartered in Hemet, California, performs all the tasks necessary to achieve insurance compliance and manages the entire process of soliciting, validating, following up on non-compliance, and electronically storing clients’ incoming certificates of insurance.

According to Roth, IDS processed approximately 1.5 million insurance documents on behalf of its clients. Surprisingly, managing compliance on just 500-1,000 relationships for a single client can generate as many as 5,000 documents per year.

Naturally, the paper chase is even greater with an organization with thousands of relationships. For example, IDS manages insurance compliance on approximately 15,000 vendor relationships for The Home Depot. For one commercial leasing client, IDS must collect from its lessees evidence of as many as 15 different types of insurance coverage and as many as 12 different coverage endorsements, depending on the requirements of the lease agreement.

One would think that one piece of paper–one certificate of insurance–is all that is needed each year from each obligor. Not so. The reality is that it is not uncommon to receive eight or more documents on behalf of a single insured during one year, due to requirements for more than one line of insurance, change in coverage or agent, or a certificate not meeting a client’s requirements.

Front Line of Defense

IDS provides sophisticated technology interfaces with some of its large clients so clients can view that insurance information on their internal system. Via the Internet, IDS sends crucial updated information multiple times each day. “For some clients, when we determine the insurance is inadequate, we send a flag through an interface to their accounting system, and it can stop a check from going out until the issue is resolved,” Roth states.

Another company integrates the electronic insurance status information into its swipe-card entry system for outside contractors seeking entry at its locations. “After it reads the card, the client’s system can instantly determine whether the contractor’s insurance is compliant. If the contractor is not in compliance, he won’t be allowed into the facility,” explains Roth.

Norman at CCBC advises clients considering outsourcing their insurance compliance process not to forget that such measures as blocking non-compliant vendors is still the client’s role and crucial to the success of the process. “You have to communicate with your field people and your various branches to make sure they understand the program and the importance of using properly insured vendors,” she stresses.

Zooming in on Value

Like all outsourcing service providers, IDS has critical mass and economies of scale that make its solution more affordable than doing the work in-house. “We are tracking close to 300,000 contractual relationships at this point. That makes it easier for us to cost-justify investing in technology; our clients would not be able to rationalize the identical investment if made solely for their own volume of work,” states Roth.

In addition, because the outsourcer just focuses on tracking insurance, it develops and implements controls that clients would not have the time, focus, or expertise to implement on their own.

Sutton says she compared performance of the insurance-compliance work in-house versus outsourcing it. “You would have to pay an administrative person to generate the letters and do the phone calls, plus somebody to monitor it all. To hire a person and pay them benefits would cost twice as much as outsourcing.”

No matter whether a company is in the retail, construction, restaurant, real estate, or another type of business, if it has a significant number of suppliers, subcontractors, vendors, tenants, or others obliged to provide evidence of insurance, it is an ideal candidate for reaping the benefits of outsourcing the management of certificate of insurance compliance.

Lessons from the Outsourcing Journal:

  • Collecting proof of insurance is a time-consuming, labor-and paper-intensive process; there is often disagreement within an organization as to which functional area has the resources and knowledge and should “own” the work.
  • An outsourcing provider has critical mass and economies of scale that make its solution more affordable than doing the work in-house; it is easier to cost-justify investing in technology as well as develop and implement control mechanisms.
  • An outsourcer’s investments can provide its clients with sophisticated technology that integrates with a client’s other systems to block on-premise entry of an uninsured vendor or block sending payment to a vendor not in compliance with the required insurance certificates.
  • Because of labor costs, outsourcing insurance-compliance processes can cost half as much as doing the work in-house.
  • Outsourcing the handling of insurance certificate compliance processes centralizes the information so a company can easily find the certificates when needed.

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