How to Avoid the 5 Most Common Errors on Insurance Certificates
No matter your industry, you must make sure to cover the risks your company faces. The best way to do this is with the correct Certificate of Insurance (COI).
There are many misconceptions about COIs and to avoid important errors when collecting and tracking them, you need to be prepared and understand the common issues that will arise.
So, let us start by defining them first! Certificates of Insurance are documents containing all the essential details of an insurance policy. They need to be easily digestible and this is done with a standardized format. A COI is intended to prove a policy’s status, quick access to its coverage details, reduce exposure to risk, and protect against third-party liability.
The Road to Certificate of Insurance Clarity
In recent years, insurance regulators and professional insurance organizations have focused on creating clarity on certificates of insurance. Insurance commissioners created new regulations while insurance agents and brokerage associations focused on providing continuing education classes for the insurance intermediaries that issue certificates of insurance.
Today, we will cover the 5 most common mistakes you can start avoiding to ensure the security of your business.
Mistake #1: Coverage is Not Altered by a Certificate of Insurance
One of the most important aspects of an insurance certificate is its ability to break down coverage clearly and accurately in an insurance policy.
Many people believe a certificate of insurance can alter insurance coverage. This is not the case. A COI is a representation of the insurance coverage available for the insured at the time of certificate creation.
An inexperienced individual may provide an inaccurate COI to Certificate Holders and, when this happens, people believe they have coverage that is not really provided. To avoid this, those requesting COIs should only accept ones issued by the licensed insurance company that provides coverage to the insured.
One of the easiest ways to spot a legitimate certificate of insurance is learning the template that the Association of Cooperative Operations Research and Development (ACORD) provides.
Remember, an insurance certificate is not an insurance policy. It provides proof of coverage at a specific point in time. This means that when renewal comes around, there could be changes in the policy and you should request a new certificate.
Mistake #2: Inaccurately Reporting Coverage
Insureds need to be aware that inaccurately reporting insurance coverage on a COI on purpose is against the law. Because most insurance policies are hundreds of pages long, it is difficult to summarize an entire policy on a certificate. This causes many key details to be left out, so certificates of insurance need to be filled out as accurately as possible.
Since it is so easy to make a mistake on an insurance certificate, the person issuing a certificate should have some form of Errors and Omissions Insurance (E&O) to protect themself from any honest mistakes. This coverage will kick in and cover the issuer if the Certificate Holder faces a loss that they thought had coverage when in fact it did not.
An example of this is a common problem specifically faced by Construction Contractors. The issue arises when a contractor has to add vendors as additional insureds. This requirement is usually part of a contract and the COI showing this coverage must have a specific format. Because of the detail required on these certificates, mistakes are common.
Mistake #3: The Big Problem with Environmental Insurance
It is extremely difficult to accurately represent Environmental coverage in a Certificate of Insurance because there is no industry standard for coverage provided in these policies. According to the International Risk Management Institute (IRMI), “there is very little regulatory oversight of the coverage line because almost all of the environmental insurance policies are written in the excess and surplus lines insurance marketplace.”
For example, if a contractor has to carry Environmental coverage to assure any damage from chemicals has insurance coverage, they need an insurance certificate to prove this. Since there is not a standard Environmental insurance policy, a Certificate Holder will have a hard time determining coverage from the COI. Because there is no standardized Environmental insurance policy, inaccurate reporting of this coverage in insurance certificates is common.
Mistake #4: Misrepresentations on Insurance Certificates
A misrepresentation is a deviation between the insurances as specifically referenced in the procurement contract and the insurance as represented on the certificate of insurance. In simple words, the Certificate of Insurance is not accurate.
For example, when the standard ACORD 25 Certificate of Liability Insurance is issued, the coverages reflected in the policies shown can be argued to have been misrepresented if the policies have exclusionary endorsements attached which are not shown on the certificates. Cases involving misrepresentations of coverage for failing to show applicable exclusionary endorsements are now emerging and addressing multiple issues.
The good news is that once the areas of coverage defects are known, the problems with misleading insurance certificates are typically easy to fix. Most of the observed defects in insurance certificates could be attributed to the person issuing the insurance certificate either not reading or not understanding the insurance requirements in the contract. In other cases, the issuer’s general knowledge of insurance was questionable is another reason for misrepresentations.
Mistake #5: Is There a Way I can Make Sure Requirements are Met?
Meeting all the requirements is also a common mistake and a complex task to achieve. Because your business is unique, you will want to tailor your contracts to your businesses specific requirements rather than duplicate them from the internet.
And to track all these unique requirements, it is a recommended practices to have a tracking process in place to measure and track compliance. That is where technology comes in!
SmartCompliance is a Certificate of Insurance collection and tracking software that allows you to set up requirements groups for your projects. When you or a vendor uploads a certificate, our Optical Character Recognition (OCR) scans the document and checks the certificate against your custom requirements. Next, the software categorizes insureds as compliant or non-compliant and you can run reports to see where you need certificates and which ones need updating.
To learn more about SmartCompliance and to see the software in action, sign up for a free product demo!
