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Increasing COI Compliance

There is mounting evidence that third-party providers of certificate-of-insurance management services can go well beyond the rote skill of tracking certificates and can improve COI compliance. That is an important issue for many companies given that, nationally, seven out of 10 COIs have been shown to be noncompliant, opening up companies to all kinds of exposure to risk.    

The most efficient and accurate process to review COIs relies on a human model, where deep insurance knowledge is supported by technology, rather than the other way around.  These professionals are typically highly experienced and credentialed insurance experts who review documents to find the issues that transcend the “dot the i’s and cross the t’s” recognition of machine-based systems and move into the realm of nuance, trend and pattern.  Only after the challenges are corrected does technology intervene to confirm corrections on a quality-assurance basis and to deliver reports.

Employing these experts is a significant burden on costs and infrastructure for most any company.  However, based on economies of scale, these insurance professionals who are so crucial to the process can be employed by third-party COI management firms and shared by the companies that truly need them, thus spreading the cost.  With this in mind, there seems to be a significant upside to consider partnering with outsourced systems.

When it comes to COI management — especially within the Fortune 500 community, in which there is a tremendous tonnage of COIs to track and manage — organizations face a choice.  Does it add value to outsource or not?   In the case of COIs, it’s not only a cost-savings issue — although coming to a complete understanding of all the costs and resources  involved to properly manage the process internally can be eye-opening  — but is an efficacy issue, as well.   If the typical Fortune 500 company receives between 5,000 and 10,000 COIs over the course of a year, between 3,500 and 7,000 (or more) of those COIs will need to be followed up with, tracked down and resubmitted for review.

So, if outsourcing not only provides a significant cost savings but also an increase in COI compliance and accuracy, there would be a pretty strong business case for its implementation. Obviously, corporate management is thinking the same way because the demand for COI management outsourcing is growing.  In fact, more than 70% of senior executives predicted that demand for outsourcing would become even more prevalent over the next three years, in a 2011 study conducted by Accenture and the Economist Intelligence Unit.  

The expertise required for COI compliance is extensive, and not readily found in-house.   Here are some questions you need to ask yourself in evaluating the quality of your personnel and infrastructure with regard to COI management:

  1. Do your people really understand insurance? 
  2. Do your resources know what they should be looking for on the certificate?
  3. Do they know how to figure out if the certificate meets your requirements? 
  4. Do you also require endorsements and other supporting documents from your insureds?
  5. What reporting tools exist?
  6. How do you audit in the case of a claim?

Not only does COI management require administrative personnel to handle the daily clerical to-dos and followup activities, but COI management also takes the risk manager’s focus away from the strategic initiatives and other critical functions that deserve full attention.  The risk manager’s plate is more than full — it is overflowing.  Outsourcing COI management cleans up a task that should not hit the risk manager’s desk in the first place.   

Recently, technological innovations such as partially automated systems have taken hold in outsourced COI management.  This value has been enhanced with state-of-the-art, cloud-based systems that operate transparently, away from a client company’s infrastructure.  Not only does this approach provide tremendous savings in IT infrastructure and training, but it allows specialists in COI management to treat the work as though they were right down the hall.  In fact, there are some best-of-breed outsourced COI management companies that maintain full-time professionals who operate as an extension of a client’s risk management department.

Things to consider

1. What is the status of your current positioning in relation to managing vendor risk?

  • Type of insurance program you have
  • How much of it is under your control?
  • Knowledge of staff
  • Internal policies and procedures
  • Support from the top
  • Ramifications/penalties for vendor noncompliance
  • The contract language you use
  • What is the contract for?
  • Effective contractual risk transfer
  • Separate departments in various locations
  • Disconnect between the importance of vendor and the need for a compliant certificate
  • Decentralized vendor and contract tracking
  • Standardized insurance requirements

2. Elements to consider in your vendor contracts

  • Clear, concise and standardized
  • Insurance provisions support indemnity provisions
  • Language on certificates — applicable law
  • The contract is your binding document!
  • Don’t ask for things you don’t need and, if you need them, be ready to explain why!
  • Use your broker or agencies with similar exposures as a resource when determining new requirements
  • Limit any waivers or changes
  • Authority to agree to any changes or waivers should be extremely limited
  • Always consult with your legal team

3. Key vendor issues

  • Do not always understand the requirements in the contract before signing
  • Do not pay premiums on time, letting coverage lapse
  • Change insurance agencies often, making it difficult to maintain compliance
  • Do not communicate effectively with broker before signing agreement or after certificate is submitted

4. Certificate holder operational objectives

  • Central certificate tracking methodology
  • Standardized workflow
  • Centralize organization via single access point
  • Centralize deports
  • Easy access to information
  • Accountability
  • Provide clear contractual requirements
  • Provide single collection point for certificates
  • Provide a sample certificate that can be easily accessed by vendor and broker
  • Provide a centralized communication process for both vendor and broker
  • Outline specific consequences for non-compliance

5.  Smaller vendors = larger liability

  • Risk control programs are not as advanced
  • More willing to cut corners (let insurance lapse)
  • Oftentimes do not fully understand insurance requirements and why they apply
  • The most efficient way to deal with these vendors is through direct contact with their broker

6. Characteristics of larger vendors

  • Often use standardized COIs, which cannot easily be modified to reflect additional information if requested for clarity purposes
  • Self-insurance plays a larger role
  • Strong risk control programs
  • More likely to push for limited risk transfer
  • Often request contract language modifications
  • They resist whenever possible – these changes are usually not to your benefit
  • More emphasis is placed on policy language, which requires work with the broker and the insurance company to verify specific information not included on their COI


So when does outsourcing COI management make sense?  Does it cost more money for your organization to hire the talent in-house or to outsource? Just as important, can a trusted vendor do the work better?   

If your company has a compliance-centric culture, there is a clear benefit to leveraging a flexible COI support team that understands insurance language and  can quickly refine its talent mix to support your needs — a capability you probably do not have in-house.   An increasing number of executives are finding that outsourcing can create a strategic advantage, especially for a dynamic and distributed organization whose needs are often rapidly changing.

With regard to economics, an outsourcing provider has economies of scale, knowledge expertise and the dedicated infrastructure that make its solution more affordable and cost-effective than doing the work in-house.  Outsourcing the COI management processes can cost half as much as doing the work in-house, and, with the right system, you can ultimately make yourself more attractive to insurance markets for your business.

With few exceptions, outsourcing is a viable option for you that can result in operating cost reductions and better strategic insight. 

10 Tips to Achieve Increased COI Compliance

  • A strong insurance program
  • Clear contract language
  • Effective internal policies and procedures
  • Gain support from the top
  • Good relationships with your broker and counterparts
  • Willingness to reach out to the vendor’s broker or insurer if questions arise
  • Provide a centralized tracking methodology that can be shared among all departments, divisions and locations
  • Create a standardized workflow for internal and external users
  • Provide a centralized communication among vendor, broker and client personnel
  • Training, training, training. . . .