The problems associated with issuing certificates of insurance (COI) are so egregious, it could be argued most insurance professionals have either forgotten their existence or ignored them altogether. Nearly 30 years ago, a court characterized the certificate of insurance as “a worthless document.” Yet little has changed -- until now. With the aid of technology, promising solutions are being developed to solve the problems plaguing the outdated certificate of insurance.
There are an unlimited number of examples where the COI failed an interested party. Whether it is a lapse in coverage, incorrect limits or unknown exclusions, the COI would provide little comfort to anyone who knew the true limitations of these one-page documents. More significantly, it is often the business owner, franchisor or contractor, who have the most to lose, who are the least involved in obtaining and confirming coverage.
It may not entirely be the fault of the industry for the COI’s apparent challenges. The alternative to COIs would require the comprehensive review of hundred-page policies and constant confirmation with carriers of their in-force status. -- a costly replacement that business would prefer to avoid.
Why COIs Are a Cause for Concern
The sheer number of challenges associated with certificates of insurance should make any agent or insured take pause. Deemed nothing more than an informational piece of paper, COIs are consistently issued to businesses that are only looking to tick a box off a checklist. On the other side, organizations that are looking to protect their interests by requesting COIs from their vendors often take minimal steps to ensure they are receiving the protection they desire.
Consider that the COI does not:
List Exclusions — Certificates of insurance do not list the myriad of exclusions that could leave insureds without coverage. Particularly in the construction industry, insurers are keen to restrict coverage of the contractors they insure -- such as the roofing contractor whose liability policy excluded roofing work, or the painter doing work for a major home builder whose policy specifically excludes tract homes.
Confer Any Rights — A COI is “issued as a matter of information only and confers no rights.” The documents are nothing more than a summary of coverage provided by an insurance agent as evidence the insured obtained coverage. Language exists within most COIs explicitly advising that policies must be endorsed to provide additional insured status and again warns rights are not conferred in lieu of such endorsement.
Constitute a Contract — The COI is littered with disclaimers, including language insulating agents, brokers and insurers by specifically stating “this form does not constitute a contract.” Wording continues to remove any ambiguity by stating coverage is not affirmed by the certificate. The specificity of the language is intended to remove all responsibility from the agent and the insurance company represented.
Guarantee Notice of Cancellation — Even if a certificate of insurance has been properly produced, accurately reflecting the terms afforded within the insurance policy it represents, certificate holders are still exposed to the potential the underlying policy gets canceled. Cancellations can occur for a variety of reasons, including failure to pay premiums, unresolved audit disputes or unattended loss control recommendations.
The ubiquitous nature of the certificate of insurance has blinded certificate holders to the glaring and obvious deficiencies they carry. Perhaps there is some reliance by insureds on the insurance producer and their errors and omissions coverage. But, again, while individual circumstances may possibly implicate an agent for inaccuracies, there remain many more reasons a certificate could fail.
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The Broken Process of Issuing Certificates
While certificates of insurance themselves are unquestionably flawed, we must also look at the industry’s standard practice of how COIs are issued. In doing so, we can begin to grasp how something designed to be quick and efficient has become an exposure even for those being insured.
Cutting costs in any industry commonly relies on reducing tasks to the lowest common denominator. Insurance is no exception. The issuance of certificates has become so procedure-based, their significance has been all but lost.
Take franchisors. They request that franchisees procure insurance and forward proof of coverage in the form of a certificate of insurance. As the first step, franchisors provide very clear instructions regarding the type of coverage required. But from this point forward vulnerabilities in the process are exposed.
Insurance Placement — The franchisee solicits quotations from local insurance agents to obtain the necessary coverage. While franchisees rely on producers to obtain the appropriate limits of coverage, the desire to place coverage at the most competitive premium could lead less experienced agents to place coverage that has unfavorable conditions or exclusions.
CRM Input — Insureds' data, including coverage information, lives inside the insurance agency’s client relationship management program. Commercial lines have not been as fortunate as their personal lines counterparts in that nearly all coverage information must be input manually. When human hands are involved, there lies the possibility of inaccuracies.
COI Issuance — Most of today’s CRM programs can automatically populate and print Acord forms, including the standard certificate of insurance. If the client service manager assumes the CRM information is correct, any errors entered previously will be transposed onto the certificate of insurance.
Receipt of the COI — This last step of the process is where our concern primarily lies. Often there is a clerk on staff with a franchisor (or other interested party) who receives the certificate of insurance and does nothing more than crosscheck the information against a checklist. Rarely are insureds requesting policy copies to identify any potential coverage gaps or exclusions.
The certificate of insurance is a snapshot in time. Even if every step of the process has been followed to produce an accurate COI, the document can only be relied on in that moment. Any reliance on the COI as proof of coverage after its initial insurance can be undermined by midterm endorsements or an unforeseen cancellation.
Who Will Transform the COI Process?
Without the hand of technology involved, the only sure-fire solution to ensure the policy provides coverage as intended remains a painstakingly manual process. It remains incumbent on insureds and other interested parties to review policies in their entirety to confirm coverage. Regrettably, today such reviews can only be tackled by the largest of companies with both the necessary personnel and deep enough pockets.
However, as insurtech begins to penetrate deeper into the commercial lines space, technological developments for the less exciting aspects of insurance, such as the COI, will follow. Because the challenges associated with certificates of insurance are so pervasive, solutions will likely be developed by several different drivers.
Carrier-Centric — Insurance carriers will continue to work on improving the customer experience either directly with the consumer or through agents and brokers. Carrier-centric solutions would offer an additional way to build brand loyalty and increase policy retention. Insureds who have experienced an uninsured claim after collecting a COI may be willing to part with the ability to shop their coverage in exchange for more certainty with their certificates.
Industry-Driven — Industries relying most heavily on COIs to conduct their business may not wait for their insurers to present a solution. Instead, individual industries may take it upon themselves to force carriers to develop solutions under the threat of moving their business elsewhere. Industries or individual businesses with enough weight to broach the issue may also have the capacity to develop insurance pools tailored to their own needs, eliminating the need for COIs for those who participate.
Third Party Insurtech — Technology solutions, independent of a single insurance company and with the ability to serve multiple industries, can offer the flexibility necessary to satisfy the various needs of agents, carriers and insureds. Acting as a bridge, third-party technology companies can bring many insurers together to serve those industries desperately seeking a way to confidently rely on the COI.
There is plenty of room in the marketplace for one or more drivers to profoundly change the COI process. How solutions are designed and implemented will likely set the stage for how certificates are issued in the future, regardless of the innovator.
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How Technology Will Transform the COI
Technology tends to improve existing processes or services only slightly. Irrespective of who will develop technologies to tackle the COI’s challenges, success will only come once all its related concerns have been addressed. In fact, perfunctory improvements could actually further overstate the already misleading sense of security certificates present.
This problem necessitates a truly comprehensive solution for the COI -- an answer where certificates can be relied upon in real time, any time.
Developing such a complete solution requires the entire COI process be examined through the eyes of all interested parties, from insurer to insured. In between the two, we must also investigate whether brokers are required or should even be involved in facilitating certificates.
Ultimately, we must look through the lens of our named and additional insureds who hold all the risk in this equation. Often naïve to the COI’s deficiencies, they deserve better from the insurance industry. Now is the time for technology initiatives to reimagine the certificate of insurance and the issuance process. The best solution will be so transformative it may be unrecognizable in comparison with today’s practices. The industry will question why COIs were ever handled any other way.
