Best Practices for Transferring Third Party Risk
Risk transfer is a risk management strategy that involves the contractual shifting of risk from one party to another. However, like every contract, there’s due diligence that needs to be done prior to signing.
Prior to signing, parties should ensure the contract outlines their intent and all terms are negotiated. There should be a clear understanding of the risks you’re taking on and the risks you’re transferring to another party. Regularly reviewing the terms and consulting with an attorney is always a recommended practice with contracts.
Businesses are constantly involved with third parties such as subcontractors, suppliers, truckers, vendors and tenants. What would happen if a trucker crashed and got injured, damaging your company’s product? Who would be responsible for the injury and losses? That’s why it’s important to transfer risk to the appropriate parties.
A tender is defined as a written notice to someone else’s insurance company that you’re going to seek coverage as an insured. When a lawsuit arises, tendering your defense is a very critical phase and should be done as soon as possible. Getting a certificate of insurance can be very beneficial in situations like this because then you know exactly who the third party’s insurance company is and can tender your defense directly to them without having to deal with the third party as a middle man.
For more detailed information on effectively transferring risk, as well as reviewing and analyzing certificates of insurance, we invite you to listen in on this Assurance University Webinar Replay.
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