Rules for Insurance Non-Compliance: Winning at Risk Management

December 17, 2019

Frequent readers of this blog know myCOI is all about preventing risk through insurance compliance. But what happens when a tenant, vendor, contractor, or other third party falls out of compliance? Unfortunately, no risk mitigation program can perfectly prevent an entity from letting their insurance lapse, but it can react quickly and appropriately when contracted parties don’t play by the rules. After all, in the game of loss prevention, you need to win. 

Rule #1: Work Stops – Immediately

Notify the third party and halt their operations immediately once an insurance lapse or policy gap is discovered. You might be tempted to let them work while the issue gets resolved. Project timelines or cost pressures may not allow for delays, right? Wrong. Thinking this way is a big mistake. The minute a third party’s insurance lapses, the hiring party becomes responsible for any losses. A Workers’ Comp claim or property damage could cost far more than any delay to a project timeline. Once you find an insurance problem, make the third party stop work until the issue gets fixed. 

Rule #2: Put It in Writing

Issue all communications to third parties regarding the contract and insurance compliance in writing. This includes expiration notices, stop work orders, and contractual requirement discussions. Create a paper trail. Should you need to discontinue a third-party relationship or prevent and combat litigation, having physical documentation helps make the case. 

Rule #3: Make Compliance Easy

Everyone operating within a property or working on a project is busy. Limit risk exposure by making compliance easy. During the contractual stage, gather contact details for the third party’s insurance provider and gain permission for speaking to the agent. When a policy needs amended or renewed, reach out to the insurer directly for updated information. Expedite the process through technology that allows insurers to uploaded certificates of insurance (COIs) or submit them via email. A simple method for updating COIs quickly can reduce downtime from days to just a matter of minutes. 

Rule #4: Have a Back-up Plan

Many third-party insurance policies lapse due to non-payment. Often a quick reminder solves this issue. However, more serious is the vendor strapped for cash or a contractor with so many claims their high premiums make insurance unaffordable. Ensure every property and project has a list of qualified third parties should you need to find a new provider quickly. Look at the request for proposal (RFP) bids or past projects to identify viable third parties able to step in while also operating within the compliance guidelines.

Rule #5: Withhold Payments

Write into the contract that payments will be held for non-compliant third parties. Many subcontractors receive installment payments based on project milestones. Check for active insurance meeting the contract requirements before releasing any payments. No third party should be paid for operating unsafely or putting your business at risk. 

When non-compliance happens, it need not equal a loss if met with a swift response and firm position. Of course, the best defense is a good offense. Proactively stop compliance issues before they occur with myCOI. Our automated renewal alerts and risk insights dashboard can be true game changers for your business.

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