Trust but Verify: Common Sense Management of Contractor Risk
A mortgage lender won’t give you a loan without verifying information that you provide on your loan application. For example, the lender requires that you produce documentation, or performs their own check with your employer, to ensure that your income level satisfies their minimum requirements to support the loan size that you’re seeking. It’s a basic risk management practice – establishing key parameters and verifying that they’ve been met prior to taking on risk – and one that companies are wise to follow when starting to do business with a new contractor.
Contractors represent a vital addition to the workforce for many organizations. A contract workforce offers many benefits: contractors can allow a company to vary the size of its workforce according to the intensity of work activity; contractors may offer valuable specialized skills, or have needed experience handling especially hazardous tasks; or there may be other requirements that contractors can uniquely fulfill. However, outsourcing work to entities not directly part of your organization and workers who are not your direct employees also introduces risk. An important aspect of managing this risk is requiring that the contractor company maintain insurance coverage appropriate to the type of work being performed and other factors. For example, required coverage may include general liability, professional liability, commercial auto, and/or workers’ compensation insurance.
A Verification Tool: The Certificate of Insurance
The documentation that hiring companies typically require to verify that a contractor has necessary coverage in place before work begins is the certificate of insurance (COI). Collection and tracking (e.g. keeping track of expirations) of COIs can become a tedious and time-consuming process, and companies often seek out third-party technology or services, or a combination of the two, to offload this burden. The landscape of COI tracking providers is broad, including Docutrax, Exigis, JDi Data, and others. Some vendors offer a very low-cost solution focused purely on automating COI collection and providing a central repository for tracking COIs. However, to be of real value, a third-party COI tracking solution needs to go beyond simply populating and maintaining a database of COIs.
What to Look For: Evaluating Third-Party COI Tracking Solutions
Here are key things to consider when evaluating a COI tracking solution:
- While technology alone is not sufficient, it is a vital component of a COI tracking solution. Technology should greatly simplify the management of COIs – for you and your contractors. The software should:
- Provide a simple process for contractors to submit coverage details, COIs, and renewal updates
- Allow you to group contractors and tailor each group’s coverage requirements based on risk factors, such as type of work performed
- Automatically enforce insurance requirements aligned with your procurement policies
- Enable you to easily see a contractor’s current insurance status and centrally track all of your contractors’ COIs
- Provide reports that allow you to keep on top of policy expiration dates
- Generate automated email reminders that alert contractors to upcoming policy expirations and the need to submit renewals
- Don’t miss a critical step in the verification process – to ensure the validity of the COI and verify that the insurance truly satisfies your requirements, the the COI tracking solution should include audit services that compare submitted COIs to your specific coverage requirements.
- Insurance is typically just one of your prequalification criteria; consider where the vendor’s solution lets you manage other contractor requirements, such as safety and drug and alcohol, along with insurance, using a single system, giving you a one-stop view of a contractor’s readiness-to-work.
- Evaluate the flexibility of the solution’s contractor pricing model – a solution that bundles the cost of all prequalification services (insurance, safety, etc.) may be cost prohibitive for smaller contractors that are only required to participate in your insurance prequalification program – and you won’t want the burden of managing these contractors separately outside of your COI tracking system.
Helping You Effectively Manage Risk
Requiring your contractors to maintain appropriate insurance coverage is one measure to mitigate the risk posed by a contractor workforce. A complete COI tracking solution that combines technology with COI audit services can save you time and money associated with administering this requirement and provide peace of mind. To learn more about how Veriforce can help, visit our Assure solutions.