The processing of certificates of insurance has evolved into one of the most daunting and frustrating tasks that insurance agencies face. Although this crucial activity generates no direct revenue for the agency, it incurs substantial operational costs and exposes the agency to significant errors and omissions (E&O) risks, creating a complex and multifaceted challenge for agents and brokers.
Delving into the intricacies of this issue reveals the financial burden associated with issuing certificates. The cost of producing a standard ACORD 25 document alone hovers around $10, a seemingly nominal fee, but when clients send contracts or specific insurance requirements, the expenses can surge to a staggering $25-$30, and sometimes even more, especially for highly complicated requests. These cumbersome requirements, some of which cannot be met (like when the certificate holder wants to be an additional Named Insured or an Additional Insured on your client’s Workers’ Compensation policy), turn an otherwise routine task into a time-consuming and resource-intensive endeavor.
Over the past few years, agents and brokers have witnessed a disheartening trend: the cost of issuing certificates has seen an alarming twofold increase. This rise is primarily attributable to the mounting complexity of certificate requests and the surging volume of such inquiries. Unlike insurance carriers who can offset increasing costs by adjusting premiums, agents lack this flexibility, leaving them with little recourse to recover these expenses without running afoul of potential E&O claims.
Regrettably, the challenges don't end with operational costs. The processing of certificates has morphed into a costly black hole, consuming valuable time that could otherwise be devoted to revenue generating activities and providing better service to clients. What's more, agencies are compelled to shoulder the burden of providing a “free” service to third parties, often without any reciprocation or appreciation for their efforts. The paradox lies in the fact that certificate holders and their third-party compliance firms have grown to expect these services without considering the financial implications or the resources invested by the agency.
The pitfalls of this arduous process extend beyond operational costs, as it has become a breeding ground for E&O risks. What was once a negligible concern has now morphed into a formidable challenge, with a double-digit percent of all commercial-lines E&O claims attributed to certificates of insurance and the additional-insured issues that accompany them.
Examples of costly errors and their consequences abound. Agents have been known to neglect obtaining the necessary additional insured endorsement, leading to contentious settlements amounting to millions of dollars (T-Mobile USA Inc. v. Selective Insurance Company of America). In other instances, the misuse of blanket additional insured endorsements, devoid of written contracts, has resulted in massive financial losses due to coverage gaps. Even more distressing are cases where agents issued certificates for policies that were not in force, putting businesses and individuals at grave risk. These oversights have led to devastating outcomes, culminating in protracted E&O lawsuits with defense and settlement costs stretching into the millions.
Even more alarming are the ongoing court cases involving certificates of insurance that allegedly misrepresented coverage, putting not only millions but potentially hundreds of millions of dollars at stake. The implications are dire, with substantial financial repercussions and potentially tarnishing the agency’s reputation.
In light of these pressing concerns, it becomes evident that the costs associated with certificates of insurance are far from trivial. They encompass operational expenses and significant E&O risks that can cripple an agency's financial stability and tarnish its hard-earned reputation. Now more than ever, the insurance industry must address these challenges head-on.
In response to this multifaceted challenge, agents and brokers must embrace a forward-thinking mindset, actively seeking and implementing effective strategies to streamline the cumbersome certificate processing workflow. Embracing technology and data-driven approach will be the key differentiator in enabling agencies to navigate the intricate nuances of certificates of insurance successfully. By harnessing the power of automation, artificial intelligence, and data analytics, agents and brokers can dramatically reduce processing time, minimize errors, and stay on top of evolving compliance requirements. This strategic transformation not only streamlines operations but also frees up valuable resources, allowing agents to focus on providing exceptional customer service and building meaningful client relationships.
Amidst an ever-evolving insurance landscape, the successful adaptation to the digital era will be a pillar of the agency's resilience and growth. It will enable agencies to stay competitive, agile, and responsive to the changing needs of their clients and the broader market.
Now is the time for the insurance industry to rise to the occasion and redefine its approach to certificates of insurance, ensuring a sustainable and prosperous future in the face of ongoing challenges. Certificate Hero's platform is the solution to revolutionize the COI processing and enhance agencies' productivity. Learn more about the benefits by scheduling a demo.