One of the biggest challenges an organization faces when working with contractors or subcontractors is remaining compliant with accurate and enforced Certificates of Insurance (COI). A Certificate of Insurance is not an insurance policy, it is a certificate verifying that an individual or organization has insurance at a certain point in time. A fake COI is a certificate of insurance that does not have adequate coverage, or in some cases, no coverage at all.
It is imperative that your organization has a clear understanding of what is an authentic certificate and what is not and have a clear process to track information and avoid mistakes or purposeful inaccuracies in a COI before it is accepted as valid.
Can an automated tracking system do it all?
Certificate tracking software helps with automating your organization’s processes saving you time and therefore increasing your ROI by reducing hours spent manually tracking COIs. But even with an automated system there still needs to be a human element involved when ensuring that a COI is valid.
It is impossible for an automated system to ensure that:
- The insurance policy hasn’t been canceled following the creation of the COI document
- The amount insured is listed correctly. This needs to be verified by the actual policy.
How Can I Avoid Processing a Fake COI?
Each insurer has its own requirements and underwriting process making it impossible to have one straightforward process that can be applied to each COI you encounter. But you can follow these steps to verify a COI and decrease your risk of processing a fraudulent document.
- Contact the insurance broker to make sure that the policy is enforced. The policyholder and their contact information are listed on the COI, so calling their office to ensure that this policy is in fact valid is a simple process. A carrier should have no problem answering your questions and verifying coverage for a specific contractor. They will tell you if the contractor does indeed have insurance.
- Is the insurance carrier a qualified legal company? Always verify the insurance company on the certificate by making sure that they are qualified by AM Best. If they never return your call or refuse to answer questions on the coverage for a specific contractor, they might not be a trustworthy agent.
- Does the carrier have financial stability? Using independent agencies that rate the overall financial health of insurance companies is a great way to know if the company is used by your contractor is going to be able to cover payments in the event of a claim. AM Best, Fitch, Kroll Bond Rating Agency (KBRA), Moody’s, and Standard & Poor are all companies to use.
- Ask for a deck page outlining the coverage. A deck page is primarily the first page of a policy that outlines all coverages. Any reputable carrier should be willing and able to provide you with this information.
- What form is being used? The most widely accepted certificate of insurance form is the Acord 25. To ensure that this is an Acord 25 form, look for the certificate on the bottom left-hand corner of the document. Some carriers do create their own forms which are acceptable, however, in these situations, you must be more diligent that the agency is a legal entity.
- Pay attention to the details by examining the policy’s effective and expiration dates and description of the operations section. Make sure the information is aligned properly and typed in a uniform font. If you notice any handwritten dates or font that does not match the rest of the form, it could be fraudulent.
What should I do if I have been given a fake COI?
Before any work begins on your project, all Certificates of Insurance must be up to date and compliant. Any inaccuracies must be fixed before any contractor or subcontractor begins work. In the case of a fraudulent policy, a new legal policy must be in place before any contractor or subcontractor begins work. If there is a claim made after work has begun, it will not be covered by a faulty or fraudulent insurance policy and your organization will be exposed to potential liability, not covered by your contractor or insured.
Technology in the insurance industry is not as advanced as in other industries when it comes to notifying organizations or individuals if a policy has been terminated or if there have been any fraudulent activities noted. For example, when you purchase a new car or you purchase a new home the finance company that holds the car loan or mortgage is listed on the policy as a lienholder or loss payee.
If the insurance policy was ever canceled or if there was any fraudulent activity with the policy, the finance company would be automatically notified. Because that infrastructure has not yet been built for general liability insurance, there are instances where an organization is not notified when there is something wrong with a policy. This is another reason why it is extremely important to communicate with carriers so that your organization can be notified in the event there is something wrong with the certificate.
Implement a COI Tracking Solution
Certificate of Insurance tracking software is imperative for those organizations that process multiple COIs every month. It has been proved that using automation increases your ROI and ensures compliance. COI tracking software prevents the filing of data on the COI inaccurately – saving countless hours of manual labor and reducing the risk of human error. When a large portion of the tracking can be completed through automation, there is more time available to ensure the accuracy of a COI using the suggested steps listed previously. A good tracking solution can make corresponding directly with the carrier easy, which will assist in discovering a fake COI.
If you are considering a COI tracking solution – contact the CTrax team for a demo to see how your organization’s Certificates of Insurance could be tracked using our innovative Vendor Profile and Optical Recognition Software. It is the ideal automated tool to work in tandem with the manual process to verify your COIs.