Arm Yourself with 3 Tips for Best Practices in Risk Transfer
As a business, it's essential to prevent liability losses and become aware of potential exposures when working with third party entities such as contractors, suppliers, vendors and tenants. What can you do to ensure you're protected?
1. Review Contracts, Agreements and Purchase Orders
It's important all relationships with third party entities start with the issuance of some form of contract. Even the majority of additional insured endorsement forms rely on the assumption that a contract is in place prior to the incident or loss. As contracts can often be long and overwhelming, there are a few key pieces of information that should be included as it relates to insurance requirements:
- Level of additional insured status
Companies should review their contracts often to ensure the language and requirements are kept up to date with laws and regulations and the insurance requirements are in line with the type of exposure.
2. Implement a Risk Transfer and Certificate Tracking Program
The purpose of a tracking program is to make certain a business is aware of the third party entities they're doing business with and any potential liability with that entity such as a lack in coverage. A tracking program allows you to obtain, analyze, and monitor your third party certificates of insurance. You have a checks and balances system to ensure you're receiving a current certificate and signed contract from each entity you require from. Once that certificate is received, it can be easily analyzed to determine compliance or lack thereof. In the event of non-compliance or expiration, you can easily follow up with third parties by use of automated notices. Please use caution when reviewing additional insured status. As the certificate of insurance provides a snap shot of the insureds coverage, the level of additional insured status is driven by the endorsement itself. It's crucial to have each additional insured endorsement reviewed by a professional to determine the level of coverage being provided.
3. Monitor and Review the Results
Once your tracking program is in place, you can continue to monitor the certificates of insurance for expiration to ensure a renewal certificate is being provided in a timely manner. You can also utilize the results your program is providing by determining compliance rate, identifying potential liability exposure with high risk entities and determining how to approach issues with common discrepancies.
If you're not incorporating risk transfer methods into your day-to-day activities, the exposure could negatively impact your financial strength, as well as your own insurance programs and cost. Become proactive in preventing liability exposures rather than waiting to be reactive and pay for that liability. For more information on how you can improve your risk transfer practices, contact your insurance broker.
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