This blog was inspired by the meeting facilitated by Julie Gaiaschi, CEO & Co-Founder of TPRA, at TPRA’s November 2024 Practitioner Member Roundtable. (To watch the full presentation, TPRA Members can visit our Previous Meetings page and navigate to the November 2024 meeting recording.)
With insurance risk, it is crucial to evaluate whether coverage exists and if it can protect against potential liabilities. Furthermore, understanding the types of coverage available and the appropriate limits ensures that your organization is protected against unforeseen events.
How can you evaluate coverage types and limits to ensure they align with your risk tolerance and provide the necessary safeguards?
In this blog, we will cover:
Addressing Insurance Risk
What is Insurance
Insurance Risk
What To Evaluate
Insurance Types & Limits
What is Insurance
The primary purpose of insurance is to mitigate the financial impact of unforeseen events or risks, providing individuals and businesses with a sense of security and stability. It is a transfer of financial risk when the likelihood of a risk occurring is low but the impact is high. If an organization is critical or high-risk, its insurance requirements should be specified in the contract.
There should be a pre-contract evaluation of the insurance coverage and policies held by a third party to ensure they have adequate coverage to mitigate potential risks and liabilities. This assessment aims to confirm that the third party’s insurance meets your organization’s expectations, risk methodology, and risk appetite, while also ensuring adequate protection for both parties in case of unforeseen events.
Insurance Risk
There are many different types of insurance risk that can occur, including but not limited to:
Insufficient Insurance Coverage
Lapse in Insurance Coverage
Irrelevant Coverage
Lack of Umbrella or Excess Liability
Out of Compliance w/ Contractual Requirements
Changes to Policy Terms and/or Limits
Failure to Address Emerging Risks
What To Evaluate
Evaluating a third party's insurance involves examining several factors to ensure their policies meet your organization's requirements and mitigate potential risks effectively. Below, you can read about the key aspects to consider during this evaluation.
Coverage Types
Certificate of Insurance (COI)
Coverage Limits
Scope of Coverage
Effective Dates
Additional Insured
Subcontractor Coverage
Coverage Gaps
Deductibles and Self-Insured Retentions
Claims History
Notification & Reporting
Insurance Types & Limits
Below is a list of general guidelines for common insurance policies. Keep in mind that coverage needs can vary significantly, so always consult with insurance professionals and risk management experts to determine what’s appropriate for your specific situation. Disclaimer: The following is for informational purposes and does not represent insurance advice.
General Liability Insurance:
Professional Liability (Errors & Omissions):
Cyber Liability:
Umbrella or Excess Liability Insurance:
Workers Compensation:
Business Interruption:
Product Liability Insurance:
Commercial Property Insurance:
Employment Practices Liability Insurance (EPLI):
Directors and Officers (D&O) Insurance:
Conclusion
Evaluating insurance risk is an important aspect of third party risk management. By carefully assessing the coverage types, limits, and terms, organizations can ensure that both their own operations and their third party relationships are protected against potential liabilities. This comprehensive approach to insurance risk helps to ensure your organization is prepared and protected against potential challenges.
Resources:
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