4 Steps to Effectively Transfer Third Party Risk
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Staffing organizations routinely struggle with the issue of accurately assessing the exposures generated by doing business with third parties. An integral part of understanding and evaluating these exposures is developing insurance requirements for the third parties you do business with and tracking their certificates of insurance.
All third parties and clients you do business with likely already signed a contract with you that outlines the scope of services provided and the responsibilities and duties of each party (if not, a sample contract is available to you through Assurance). In this contract, you should ensure the insurance coverage required of those you are doing business with is included. These requirements will vary slightly depending on your relationship with each party (e.g. client, subcontractor, vendor, supplier, etc.). One of the best ways to concisely convey these insurance requirements is to create and include a sample certificate of insurance in each contract.
A certificate of insurance is a document issued on behalf of an insurance company to a third party as evidence of the existence and amount of insurance carried by an organization. In addition to the coverage type and limits, a certificate of insurance will often also include pertinent policy language such as additional insured and alternate employer relationships, waivers of subrogation, policy exclusions, etc.
Once the requirements are set, it’s time to develop a system to gather the certificates of insurance, review them for compliance and monitor them on a regular basis. Here are a few key steps:
- Notify all third parties of the insurance requirements. If your existing contract does not include the requirements, you’ll need to update the paperwork and send out notification to all parties of the change and what is required of them (i.e. signing a new contract and submitting a certificate of insurance).
- Once the certificates of insurance are received, evaluate them against the contract to make sure each are in compliance. This step also includes collecting and reviewing additional insured, alternate employer and waiver of subrogation endorsements, where required.
- Once the status is determined, establish a protocol for notifying the parties of any non-compliance issues. This can be done via email, letter or fax. Include a cover page outlining specifically where the certificate is deficient to help the third party easily understand what they need to do. Diligently follow-up on all non-compliant items until the third party is brought into compliance.
- Request renewal certificates. It’s important to get these prior to policy expiration for the length of time specified in the contract.
The administration process of certificate tracking can be a very labor-intensive and become a burden if a company does not have the proper tools and understanding. Assurance’s risk transfer team allows clients to outsource this process to create efficiencies in their organization while also having peace of mind that all third parties are compliant with their requirements.
For more information on this service, please ask an Assurance representative.
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