When I owned a construction company a few years ago, we were building a custom home for a family on a tight budget. We were determined to help keep their costs down and make their dream home a reality. We tracked insurance in Excel, and when a subcontractor’s policy expired, there was no visibility for the project team. Therefore, we didn’t request an updated, current certificate.
Unaware that they no longer met subcontractor insurance requirements for the project, we continued working with them. Unfortunately, a worker fell and was injured on the job site. He hired an attorney who discovered the subcontractor didn’t have insurance and therefore could go after my company: the general contractor with even larger insurance limits. We were sued for our full insurance limit amount of $8 million on a project valued at $1 million.
Most professionals in the construction industry are at least somewhat aware of the risks associated with the business. They know the importance of all parties having insurance during construction in case something goes wrong — because eventually, something will go wrong. And as my example showed, things can get expensive when that happens.
The problem is that many individuals who are charged with managing, tracking, and verifying insurance don’t always have the knowledge, time, or capacity to work out all the details and requirements for properly tracking construction risk. In turn, it’s harder for them to help the company avoid costly missteps.
Understanding Subcontractor Insurance Requirements to Mitigate Construction Risk
Unfortunately, simply having accurate and reliable insurance in place can’t protect general contractors from all aspects of construction risk. The people managing that insurance also need to understand what to look for when checking subcontractors’ insurance coverage. However, there are many nuances involved in this. A big part of those nuances is knowing the types of construction insurance required on projects.
Getting this wrong can not only be costly for your company, but also can lead to negative consequences related to issues with subcontractor performance, workmanship, quality, material failures, and worker health and safety.
When a general contractor signs a contract with an owner, the agreement will stipulate insurance requirements for the project. The general contractor will then require that all subcontractors involved with the project comply with those stipulations. In some cases, the general contractor might also require additional types of insurance coverage. For example, an owner might not require an umbrella policy, but the general contractor might decide they want that additional protection for the subcontractors they work with.
Although subcontractor insurance requirements typically vary from organization to organization, they often include the following types of construction insurance that you have to understand the nuances of when managing contracts:
- General liability
- Workers’ compensation
- Automobile coverage
- Umbrella or excess liability
Industry-standard certificates of insurance for subcontractors can give you a good idea of the types of insurance coverage your company’s partners have in place. But the only way to truly know the extent and nuance of that coverage — and protect your business from risk — is to review each subcontractor’s policy documents.
This can be a tedious and time-consuming process, which is why most companies simply trust the standard ACORD form, or the certificate of insurance (also known as the COI). So what is a COI exactly, and why do you need to know about it?
The Role of Certificates of Insurance in Construction
COI is the commonly used acronym for the standard ACORD 25 form, which was developed to establish a standard method that companies can use to track insurance policies. It hasn’t changed much since its inception, and at this point, it’s a bit antiquated.
Even so, the logic behind the form’s introduction makes sense. Insurance policy documents might contain 100 pages or more (and sometimes many more), and a large portion of the language inside is universal in the industry. The COI saves time by extracting and presenting essential information in one document. Here’s some of what is included in a COI:
- Policy name
- Policy number
- Active date and expiration date
- Name of the insured company
- Policy type (e.g. per project, claims made, occurrence-based, etc.)
- Policy specifics and dollar limits
- Insurance carrier and broker information
- Endorsements and waivers
It’s imperative that you have a system in place for reviewing, verifying, and tracking COIs. You should check that the COI includes all subcontractor policies and presents the correct maximum benefit dollar limit for each. You should also ensure that all policies are current (i.e., not expired) and “per project” rather than “claims made” policies. All “additionally insureds” for the project should be listed, and any related endorsements should be attached.
Unfortunately, COIs aren’t necessarily the source of truth we want them to be. They are often missing some important details. For example, a policy could contain an exclusion clause that denies coverage in cases where a company engages in any project that is categorized as “for-sale residential.” If you work for a general contractor that builds for-sale apartment buildings, you wouldn’t be aware of this just by reviewing the COI — which might cause you to unwittingly partner with a subcontractor that technically had zero coverage for that project. If something went wrong, the general contractor could be on the hook for a significant sum of money.
If reviewing COIs manually and tracking all these things sound complicated and labor-intensive, that’s because they are. Most reviewers simply compare the form against a template to quickly gauge its accuracy without considering the real significance of the document — and that can leave your general contractor vulnerable.
More Policies, More Problems
In most cases, general contractors have to track insurance for every subcontractor on every project to protect themselves from risk. And if one subcontractor is on multiple projects, that person has to provide a separate COI for each one. Consider an average construction company that makes $50 million a year, has 200 vendors, and works on 10 projects annually. It can be tracking as many as 4,000 insurance policies a year if only 50% of its vendors are working on their projects!
This example makes it easy to see how COI tracking can quickly become a complex task. But there are additional variables to consider, too. Insurance policies expire annually. Each of the 4,000 policies in the above example might have a different expiration date, and each one must be tracked and renewed before it expires — or a subcontractor can’t be permitted on-site and the project schedule could be negatively impacted.
All of this tracking typically takes place in an office, but subcontractors could be working on project sites that are nowhere close to the office. If a project manager in the field doesn’t receive timely information about a subcontractor’s insurance, they might unknowingly bring an uninsured subcontractor on site (again, putting the general contractor at risk).
Clearly, you need a good COI management plan if you want to organize and track your company’s subcontractors’ insurance in a way that mitigates risks. Unfortunately, few construction companies have such plans in place outside of Excel or a complex ERP.
The Current State of COI Tracking in Construction
Many construction companies still use Excel to track COIs — administrators and managers know Excel, and in some cases, that’s all they know. (I’ve been on a project site where managers even wrote letters in Excel.)
Microsoft’s spreadsheet software might have been the right tool for the job a decade ago, but it’s now becoming an obstacle. Excel does a good job of storing data, but nothing actionable happens in a spreadsheet. It’s simply a holding bin. Conditional formatting in Excel isn’t tracking; it’s just a way to make data colorful and alert people to changes — if they’re looking for those changes. Plus, using Excel for COI tracking puts the burden of accuracy on human employees and therefore exposes companies to the potential consequences of human error (which, as we all know, is almost inevitable).
Consider the case of insurance policy expiration, for example. It typically takes around 30 days to get a policy renewed. To ensure this happens on time every time, a contract administrator or project manager must scan the Excel spreadsheet each day and make a note of which policies are expiring. Then, they have to type up an email to each company with an expiring policy to request a renewal certificate and follow up on a daily or weekly basis until it’s received. This is also the same process if you are using project management software such as Procore.
Once the renewed COI arrives, it has to be verified as accurate, and the data it contains must be manually reentered into Excel or Procore. Remember the 4,000-policy situation in the example above? That’s a lot of data entry, which means plenty of opportunities for error.
Does this sound familiar? You’re looking at your subcontractors’ information in Excel and realize one subcontractor’s insurance coverage has expired, and your company is now technically noncompliant. Cue the panic and scrambling to get the insurance up to date. Here’s the bottom line: Excel is not a proactive solution for staying ahead of risk and maintaining compliance. It’s reactive, not proactive.
How COI-Tracking Software Empowers Construction Teams
As the project or compliance manager or contract administrator, you are responsible for every aspect of a project, including budgets, scheduling, contract agreements, and risk management. To save you time and headaches — and better protect your company from construction risk and the associated costs — you can rely on COI-tracking software like billy.
With billy, all COI information is stored in one place and is easily accessible via mobile phone, laptop, or any other device that accesses the internet. That means anyone on your team can quickly get a risk health check on projects no matter where you all are, and you can manage all certification-related activities — including communication with subcontractors — from a single point. Moreover, billy eliminates the need for manual data entry (and the opportunities for error that go along with it) so you can spend more time on the important stuff: scheduling and budget.
Our app can help you track and manage insurance proactively, unlike Excel or Procore. But we’re more than an app — we’re a service. We do all the tracking and verifying, and you can sleep at night knowing that your company is protected by billy and remains compliant.
As you consider whether billy’s COI-tracking software or service is right for your company, ask yourself the following questions:
- Do I and the other team members responsible for verifying certificates understand all the important insurance language and terminology?
- Do we always receive renewal notifications at least 30 days prior to certificate expiration dates?
- How many subcontractors working on current projects have at least one expired policy?
- How often do we achieve 100% compliance on construction projects?
If you’re worried about the answers to these questions (or just don’t have those answers), billy can help. Ditch the spreadsheets and experience the faster, easier, more secure way to track insurance during your construction projects. Visit our website or request a demo today to learn more!