Contractors, Insurance and Shared Risk

The issue:

Knowing Contractor Insurance Status is Critical Risk Management

Your organization is at risk if your contractor is involved in an incident and has inadequate insurance. It's worse, obviously, if they have no policy at all.

Common incidents are property damage, vehicle crashes, material or equipment losses due to theft or vandalism, or, increasingly likely, due to extreme weather or a cyber security event.

Losses and claims involving uninsured contractors are an everyday thing. Your insurance agent can likely give you multiple examples from your industry and region.

Many purchasers don't know contractor insurance status in real-time. Meaning unquantified risk is unmanaged risk. The primary exposure here is financial liability.   

Obviously, litigation or an action by an involved third party further drives up costs and sometimes reputational damage.

The good news is that the effort, knowledge, and cost to control these exposures are relatively moderate but take some resources and, ideally, technology.

The business goal is to:

1. know that contractors are adequately insured when they start at the worksite, and
2. that they remain insured for the entire active period of the contract.

How Taking Action Benefits Your Organization:

Knowing your contractor's insurance status in real time is simply good business practice. Doing so will reduce a wide swath of your company's risk. Considering all the money spent reducing risk on complex worksites, insurance is a complete bargain given its high degree of financial protection.

 Actions to Take:

1. Get a valid certificate of insurance when the contractor starts on the job site.

2. Ensure expiry dates are tracked. You'll ideally need some technology for this. Automated tracking and notifications save time and reduce errors.

3. If you use certificate tracking software, configure it so that your contractors and internal stakeholders are adequately notified of expiring certificates.

4. Develop a policy for the organization's actions when certificates expire. This means who will be informed, who will interact with the contractor, and what steps will be taken.

How does one manage these deliverables? The best tool for this job is database software configured to track certificate dates and communicate status, preferably by email or an app.

Commercial database products like MS Access or a third-party certificate management service are options clients and prime contractors tend to implement in high-risk industries.

Having a web portal reduces labor when contractors, or their insurance companies, upload their own documents.

Most third-party services incorporate document verification functions that scrub upload mistakes by comparing the document to standardized criteria to ensure accuracy.

Don't have, or aren't interested in, automated certificate management or a third-party service? Here's our guidance

• Get a valid insurance certificate when the contractor starts work on your site.
• Then, get a new certificate with each invoicing period, generally every 30 days, as the job progresses.

Knowing that your service providers are adequately insured is a high-value risk reduction activity and a contractor management best practice.

Contractor management is good business.