An annual insurance review is critical for both the contingent workforce buyer and its supply-chain and staffing partners. It’s much like how individuals review their homeowners and other insurance policies to ensure their coverage continues to meet their needs.
CW programs big and small should do periodic reviews because business needs and risk exposures can change over time. For growing and maturing CW programs, insurance policies and coverage can lag behind the evolving breadth and depth of service capabilities. So, scrutinizing the policy yearly — including requirements and levels — ensures that it is designed correctly or the coverage amount is optimally appropriate. Here’s what that entails.
Coverage review. First, you need to ensure your corporate insurance and/or risk management advisor understands the evolving types of CW talent engagement activities taking place in your organization.
Similar to other risk mitigation strategies, insurance does not cover every single CW risk situation — and would likely be too expensive even if it did. Once this insurance policy review is completed and policies are updated, you will need to share the details with your CW program partners and stakeholders.
Unfortunately — and never planned for — the buyer organization’s insurance will end up superseding or serving as an umbrella coverage for any gap or lapse that may occur with the supplier partner’s coverage. This can potentially put the buyer organization at unnecessary risk in that they may be deemed the owner of the problem that the partner’s required insurance is supposed to have covered.
Supplier partner contract elements. As a management best practice, the insurance section of a contract with a staffing provider should contain:
- Amounts, types and companies covered.
- Certificates as named insured (when one party asks the other to provide a certificate of insurance, or COI, this usually can be done at little or no cost to prove there is available insurance).
- Party (supplier partners) cannot sign a contract to make other parties (the buyer) additional insured unless the insurance company agrees via the broker.
- Notice of cancellation.
- Listing of additional insured parties: naming a party as an “additional insured.” (Note: Pay special attention to the named insured and covered risks under the insurance policy).
A few tips to keep in mind as you optimize your leverage of insurance in your risk mitigation plans:
- Don’t treat your supply partners as insurers. Indemnification clauses are not insurance. Understand there are limits to indemnification clauses in staffing and MSP contracts and they are not intended to be de facto insurance policies. In general, indemnification should be used when insurance coverage cannot be effectively deployed in terms of cost or is simply not available.
- How do you know when a partner’s insurance policy is actually in force? Waiting to be notified that a required insurance policy is/was cancelled is much too late. It can be difficult for CW programs to have full line of sight into staffing and supply chain partners’ insurance compliance. The reason for this challenge is that supplier partners have different insurance carriers/brokers and, often, different coverages with various expiration dates. With most basic audit strategies, buyer organizations are listed as an additional insured party so they can be notified if coverage has changed or if the policies have expired. But more direct, up-to-date communication and notification arrangements need to be established to make this insurance requirement effective.
Some insurance brokers that operate in the CW marketplace will actually offer visibility at the insurance policy payment level, which may serve as a canary in the coal mine: Not only do you know that a required insurance policy is in jeopardy because of late or non-payment, but a delinquent payment may bely the supplier’s other financial challenges.
- Don’t lock out key third-tier/niche staffing partners. Some CW program insurance policy requirements are not affordable for smaller or niche talent staffing partners and/or independent contractors, which are not in a position to meet the insurance requirements of a Tier 1 or Tier 2 staffing partner delivering multi-millions of dollars of staffing services to an organization. But while they don’t deliver the volume, they do deliver key talent resources that are critical to, say, 10% to 20% of the CW engagements sourced for the organization annually.
CW Marketplace Products
Too often, CW program managers find that partners do not have the fiscal resources or insurance coverage to adequately address a given risk in a specific CW engagement. Hence, other types of required insurance and their accompanying minimum insurance levels are dictated by the client companies’ risk management function. So, it is extremely unlikely that you as a CW program manager will be able to change the level of insurance required. This is often a point of contention in many contract negotiations. This is because often, the minimum required insurance levels could be construed as overkill and not tied to the economic value of a given staffing contract. Simply put, some insurance products are expensive, and the staffing partner may push back in the event the cost becomes prohibitive. Below are the most common insurance product types seen in the CW marketplace, depending on the risk mitigation required by the staffing engagement service:
- Workers’ Compensation
- Commercial General Liability Insurance
- Business Automobile Liability
- Professional Liability (Errors and Omissions)
- Property Insurance
- Umbrella and/or Excess Liability
- Blanket Bonds
- IP/Theft Protection