Certificates Of Insurance:
What Do They Really Cost Your Agency?
Offering this “free” service costs a lot in staff time—and exposes agencies to huge E&O risks
■ CERTIFIED PAIN
BY BILL WILSON
ONE OF THE most daunting (and often reviled) tasks facing agencies today involves the processing of certificates
of insurance. This is an activity that typically
generates no revenue for the agency but creates significant operational costs and dramatically heightens the agency’s E&O exposure.
One consultant estimates the cost to issue
a plain-vanilla ACORD 25 document at $7; and if some cus-tomization is required, it could
be as much as $15-18. This
figure could go even higher
when responding to requests
that insist upon the completion of some sort of “
compliance checklist” that consists of
dozens of broad, vague, generalized questions about policy coverages.
For example, an agent was given a multi-page questionnaire he was required to complete, along with an “affidavit” warranting
that coverage was in place and conformed
to the construction contract (of which he
had read two of 88 pages) that was to be
notarized and witnessed by a disinterested
third party and sent to the certificate holder
via certified mail. This document required
that over 400 entries be completed.
These affidavits and checklists often
want the agent to proclaim that the insurance policy(ies) are in compliance with
indemnity agreements the insured has
entered into—when the reality is that they
almost never do.
One producer and a customer-service
representative (CSR) spent two and a half
hours on one certificate that had to be re-
done four times. The last time was because
a field on the form was not applicable, and
the CSR had entered “NA”—but the certifi-
cate holder would only accept an entry of
“N.A.” So they had to reissue the certificate
and add the two periods after the “N” and
“A.” The contractor was due $300,000 on
a job, and the GC refused to pay until the
certificate met expectations to the letter
(or, better, punctuation mark).
There is a trial court case
proceeding involving a flood
loss where the certificate of
insurance allegedly indicated
coverage than was actually
provided. The amount at stake
is $150 million.
1) The insured requested an additional-insured endorsement as required by the construction contract, but the agent failed to
obtain it. The claim was settled for $180,000.
(At least three independent studies indicate
that 40-50 percent of all certificates that indicate additional insured status are incorrect.)
2) In another claim, an agent used a blanket additional-insured endorsement. However,
it required that AI status requests arise from
written contracts. There was no written contract, so the blanket AI endorsement was not
triggered. The cost to settle? $445,000.
3) In the third and last example, an
account was nonrenewed, and the agent
could not find another market. The insured found an E&S carrier, but the carrier
couldn’t or wouldn’t issue certificates of insurance. As a favor to his former client, the
agent used the firm’s agency-management
system to issue 4,000 certificates. As it
turned out, the coverage was not actually
in force. Following several accidents, including a fatality, an E&O lawsuit was filed.
Settlement cost: $10,290,000.
At the moment, there is a trial court
case proceeding involving a flood loss
where the certificate of insurance allegedly
indicated more flood-insurance coverage
than was actually provided. The amount at
stake is $150 million.
The costs associated with certificates of insurance are not trivial, whether you’re considering operational expenses or potential E&O
claims. To learn more about risk managing
your certificates-of-insurance exposure, visit
the Big “I” Virtual University’s free Certificate
Resource Center at www.iiaba.net/VU. NU
Bill Wilson, CPCU, ARM,
AIM, AAM, is director of
IIABA’s Virtual University.
He may be reached at