I was recently asked, what exactly is a certificate of insurance and why do I need to have one on file from my vendors?

When a customer or potential customer wants proof that your company has the appropriate level of insurance to protect your company, your employees and customers they will request proof of insurance.  The certificate of insurance is this document. 

It is generated by the insurance company or company that arranged  (insurance agent or broker) the insurance policy with the insurance company.  It shows that at the time the request was presented the policy number, coverage dates, type of coverage, and coverage limits.

The certificate is not an insurance policy nor indicate any promise to pay the certificate holder or provide any other rights to the certificate holder.  It also does not guarantee that the insurance policy will be in effect until the end of the policy noted on the form (the policy may be cancelled for a number of reasons including cancelling the policy and re-writing the policy).

The certificates are typically generated (at least in the US) on an Accord Form.  It is an industry supported organization that was chartered to standardize applications, binders, loss notices, certificates of insurance and other forms.  There are other forms that are used, and in some cases companies will publish a memorandum that outlines the types and limits of their insurance.

In addition to providing information on the types and levels of insurance, the Certificate is also a way of showing that insurance (typically commercial general and auto liability) coverage has been extended to a customer as an additional insured though for the ”additional insured” is best served with a copy of the endorsement to the insurance policy.

As I mentioned earlier,  the Certificate of Insurance (COI) is typically generated by the insurance company or insurance agent or broker.  It is important to describe to them what is being requested to

  1. Make sure the insurance policies you have in place meet the requirements
  2. Provide the specific information that is being requested

Carefully review the request and compare it to your current policies.  If the requester is asking for information that is not relevant, you may need to have a discussion with them to explain why you are unable to provide this documentation.  Additionally, the amount of coverage required may be larger than the main policy, and would be covered with umbrella coverage so this policy would need to be included in the COI. 

One of the biggest perceived benefits of the COI is the expectation that the certificate holder will be notified when a policy is cancelled or replaced.  In some of the forms wording, provides a specific amount of time (I usually saw 30 days) notice, which will allow the certificate holder the opportunity to follow up to obtain a new COI.  This condition is only as good as the follow up and follow through of the entity that issued the certificate, and my experience shows this follow through is sadly lacking.