A Certificate of Insurance (COI) is typically a document issued by an insurance broker to provide proof of insurance coverage at the time the COI is issued. A COI provides important information about an insurance policy, such as a policyholder’s name, coverage type, effective and expiration dates, insurance carrier name, and coverage limits, if applicable. A COI is not an insurance contract and does not change the terms of the insurance policy. Instead, a COI provides information on the important aspects of coverage under the insurance policy to parties other than the insured.
Why Is a COI Important?
COIs are immensely important to businesses and independent contractors. They provide confidence for all parties involved in a business transaction, so contractors and business owners should have them on hand to show clients at all times. If you are wondering why COIs are important, imagine the following scenario:
An established construction company hires a subtractor to complete a project. The subcontractor accidentally causes $100,000 in damage to a building while working on the plumbing. Fortunately, the subcontractor has provided a COI to the construction company prior to commencing work. The construction company reviewed the COI and was assured that the subcontractor had insurance coverage that can help pay for losses caused by the subcontractor.
Having a COI on hand can be highly beneficial to a company. A COI shows customers and clients that the company maintains insurance that can help pay for the cost of damages in a single brief and easy to understand document. Potential clients may also request to see a COI before they agree to do business with a company (e.g., a homeowner engaging a contractor to perform work at their home).
COIs generally are most frequently requested in connection with the following commercial insurance coverages, including:
- Commercial General Liability Insurance
- Workers’ Compensation Insurance
- Commercial Auto Insurance
- Commercial Property Insurance
- Business Owners Policy (BOP)
A COI only provides proof of insurance coverage on the date it is issued, so the party requesting a COI may also request that the insured notify them of any subsequent policy cancellation or modification.
Who Needs a Certificate of Insurance?
All businesses that maintain insurance coverage should have COIs, but COIs are especially important to independent contractors and small businesses regularly dealing with high risk of third-party damages or losses. If a contractor wants to win construction bids, they will probably need to provide a COI to prove that their general liability insurance policy is active and provides adequate coverage limits for third-party claims alleging a property damage or bodily injuries caused by the contractor.
When Should You Ask for a COI?
A company should consider asking for a COI before it hires a contractor. By requesting a COI upfront, the company can ensure the other party has adequate insurance coverage. If the contractor does not have insurance coverage, the company may end up being fully financially responsible for the loss caused by the contractor. If there are gaps in the insurance coverage, the company may request that the contractor obtain proper coverage and provide them with a new COI. If the contractor refuses to obtain the requested insurance coverage, the company may want to consider hiring another contractor.
When examining a contractor’s COI, make sure that:
- The contractor has the desired coverage limits;
- Each policy is listed in the COI;
- The COI lists the name of the contractor or person being hired;
- The insurance policies are issued by a licensed insurance carrier; and
- The policies listed in the COI are not set to expire prior to the date the project is expected to be completed.
It is also important to remember that documents can be forged or outdated. It is important to examine a COI closely.
To ensure contractors have adequate insurance coverage, a company should consider employing a COI tracking process to monitor the third parties’ compliance with the company’s insurance coverage requirements for contractors they hire. If the company is hiring contractors for a larger project, such as a commercial construction project, they may need to review numerous COIs. Often, project managers do not have the ability to track third parties’ COIs. Fortunately, they can utilize technology to help them with this process.
Tracking COIs is a key element of a company’s risk management approach. For example, if a company does not keep track of policy expiration dates listed in the COIs, and the contractor’s insurance policy lapses, the company could be on the hook for the losses caused by the contractor, which could potentially be catastrophic for the company.
There are several benefits to tracking COIs. By tracking COIs, a company can potentially:
- Identify potential coverage gaps and gain better insights by centralizing data.
- Eradicate coverage lapses by establishing automated notifications when the policy expiration dates are approaching.
- Protect their business as conditions, contractors, active vendors, and project scopes change over time.
- Improve on-time completion rates and productivity by ensuring workers can remain at a site.
How Do You Get a Certificate of Insurance?
Fortunately, obtaining a COI is relatively easy. It is important to note, however, that a COI can only be issued for an active insurance policy. If a company does not currently have the insurance coverage for which it requires a COI, then the company will need to obtain insurance coverage through a licensed insurance company. After obtaining an insurance policy, most insurance companies prompt the insured to create an online account where the insured can access all of the important insurance documents. Most of the time, the insured can access and print a COI from their account. If the insured is unable to access a COI through their account, they may need to contact their insurance broker directly to request a COI.
If an individual or a business seeking to obtain a COI from a vendor they intend to work with, they may reach out to the vendor and specify whether the document should be emailed, mailed, or presented in person. Once again, it is important to obtain and review proof of insurance coverage.
How Much Does a Certificate of Insurance Cost?
COIs are generally free to obtain. Since the insured is requesting basic information about their insurance policy, most insurance brokers will not charge the insured for issuing a COI.
Source: https://www.acrisure.com/blog/what-is-a-certificate-of-insurance