Certificates of Insurance are a widely used industry standard to verify that another business or individual has insurance in place. Often a business that is taking on risk will request a certificate of insurance to reduce their risk by verifying they have coverage.
However, there are major problems with relying solely on a certificate of insurance.
5 Reasons Certificates of Insurance Are Useless:
- It’s for informational purposes only
- Offers no rights to a franchisor
- Not a contract
- It’s a PDF document that can be falsified
- It’s not real-time
What is the Benefit of a Certificate of Insurance?
Certificates of insurance have been widely used for decades now as the go to risk mitigation tool of choice. They are a relatively simple document that can show information which may prove that a company has insurance in place at that time.
As you can see I’ve used a lot of vague language describing the use and validity of a certificate of insurance for reason. They are widely known to cause a bunch of issues. One of which are fraudulent certificates of insurance.
Take this case, for example, a certificate of insurance was issued without ever having a policy in place at all. The problem with issuing a certificate of insurance without verifying a policy is actually in place is that they prove nothing. Anyone, at any time can create a certificate of insurance by simply googling the form, taking it from online and adding in whatever they want.
So, to answer the question, I truly believe there is no benefit to receiving certificates of insurance. In fact, I think they offer a false sense of security as they give you the impression that you are protected, when in reality, you may actually not be.
As a franchisor, it’s a good first step to accept certificates of insurance from your franchisee. However, do not think for a moment that it’s an end-all solution to your risk mitigation strategy. The ultimate goal is a true real-time insurance verification solution that can provide franchisors with a pulse on the status of their franchisees’ insurance.
Reach out to us to discuss the possibilities.