As we are advancing in 2014, it is a good time to pause for a minute and evaluate the effectiveness of our programs. With the myriad of tasks that comprise the risk management function, contract review and insurance certificate monitoring are often a large consumer of time and resources. Be on the cutting edge and take a diligent yet pragmatic approach to balancing compliance enforcement with the resources available to monitor it.
First, don’t outsource the certificate management to a 3rd party. We have been dealing with multiple companies like Compliance Depot and it is usually a quite negative experience: sometimes I feel like there is a robot sitting on the other side of the line and follows very strict but obsolete rules. In my opinion, you won’t gain much by paying for such services. Instead, some organizations can go decades without ever tendering a liability claim to a contractor’s insurer. Given these statistics, justifying certificate monitoring costs can be daunting. Though, the cost of such a claim, if it were to happen, can be tremendous and could instantaneously justify the expenditures. How can you deal with this challenge?
By applying the 80/20 rule to achieve 80% of the protection desired with 20% of the effort (and cost). Here are the 7 guidelines we recommend to reach this goal.
1. Use terms of art standard to the insurance industry today.
These change over time so keep them current with annual reviews. Resist the urge to fix insurance problem wording with your own.
2. Accept standard insurance industry forms.
By agreeing to receive ACORD certificates, ISO endorsements and OCP policies, hours of review time can be saved.
3. Eliminate the impossible.
In contract wording, do not ask for items like insurance that covers all liabilities assumed in the indemnification clause or the unilateral right to not have the contractor’s deductible apply to claims against you.
4. Avoid the impractical.
Countless avoidable hours are invested in pursuing items such as 90 days notice of cancellation, additional insured status on an auto or professional liability policy, the right to approve defense counsel, and evidence of insurance from subcontractors.
5. Design contractual requirements as the minimum acceptable.
Copying wording or adding provisions by others as the latest and greatest are dangerous practices.
6. Ensure the indemnification clause is clear and enforceable.
Anti-indemnity statutes abound and clauses are frequently the subject of litigation. Stay current and review it at least annually.
7. Measure performance.
The amount of time devoted to contract review and compliance monitoring is a cost worth capturing. The payback resulting from the claims tendered to others’ insurers should be tracked as well.
Eliminating all risk in the contract review process is not possible. This best practice approach enables achieves the 80/20 split and is focused on excellence as opposed to perfection. By judiciously applying the principles presented and taking some measured risk, valuable time is freed up for other more worthwhile risk management activities.