Just before I left work one night last week, I got my ear roasted again by an insurance agent frustrated about certificates of insurance. I don't know how many calls I get each week about certificates, but they come in often enough.
According to a 2011 article by Bill Wilson of Big I Virtual University, it costs an insurance agency $7 to issue an ACORD certificate without any customization; adding custom language or terms may double that cost. An agency insuring one middle market construction account that needs 100 certificates annually will spend between $700 and $1,800 to produce those certificates.
The cost goes beyond paper or data entry. It includes time that staff spends fielding the requests, producing the certificates, forwarding them to a third party, fielding the objections from the third party, working with insurers to get demanded coverage changes, responding to the third party and the insured when the insurer refuses to make the changes, listening to an angry customer threaten to take his business elsewhere, listening to the third party insist that none of the other insurance agencies are being a problem about this, and so on and so on.
On top of that, certificates of insurance are the basis for a large percentage of errors and omissions lawsuits against agents. They are probably responsible for more E&O legal actions than any other single cause.
So, issuing certificates of insurance costs agencies hundreds of dollars (dollars that come out of commission income; in New York, agents cannot charge service fees), and they make it more likely that an agent will end up in court. Knowing this, why on earth do agents continue to issue them?
I think they should stop.
That's right. I think they should notify their clients that it is agency policy not to issue certificates of insurance, other than in situations where state law requires them (New York Workers' Compensation Law requires one form for work with government entities.) The clients should in turn notify their customers or, if they won't do it, the insurance agency should. It's time to stop the madness.
Here's what I think should happen. When an agency lands a new client who may need to give a third party proof of insurance, the agency should ask the client to sign a document. That document would give the agency permission to post the client's policy declarations and forms on a secure web site. It would also give the agency permission to make those records available to third parties who want proof of the client's insurance. This could be done with a password or an encryption key that changes regularly, or some other security mechanism.
The third party would then have the ability to review the client's policies and determine for themselves whether the policies meet contract requirements. They could compare the contract requirements to policy terms and conditions and determine if there is a shortcoming. When there is a coverage deficiency, the third party could notify the client, who would then ask the agent if coverage can be added. Then the agency would go to the insurer, as it would for any other coverage request.
Here's the deal. Right now, clients give agencies fat construction contracts and tell them to figure out what insurance is needed. However, if agents had gone to law school, they would be lawyers, not agents. They don't have the legal education to properly interpret contracts, and they should not have to. Nor should they have to endure threatening statements from third parties who do not contribute a nickel of revenue to the agency. Every day, some certificate holder tells a contractor to get a new insurance agent, one who will be "easier to do business with." It has to stop.
I have a broker's license. You know what? I have absolutely no desire to become an insurance producer because I hear too often about how much time producers waste dealing with certificate demands. Producers go into this field to make money and to help people solve their risk management problems. They don't go into it to argue endlessly about a piece of paper that some people want to transform into a contract. But that's how they spend their time.
No, thank you.
I don't know enough about anti-trust law to know whether it would be permissible for all agents to collectively stop issuing certificates. That is why I'm speaking for myself, not my employer. I do not for one second want to suggest that they favor an action that may be illegal. However, in my ideal world, certificates of insurance would be banished from the risk management world within the next half hour. Issuing them ceased to be a value-added service a long time ago. Now it is just assumed that an agency will issue hundreds of these things and deal with the inevitable arguments for zero additional compensation. It's not right, and agents should not put up with it any longer.
Stop issuing certificates of insurance. Today.