Challenges of Managing Certificates of Insurance for Homebuilders

Homebuilders are in the business of trust, relying on their good name to grow their business as they build new homes for families. But while they’re focused on the specifics of developing a neighborhood, the administrative challenges can sometimes derail operations.

In particular, managing and tracking certificates of insurance can be a big issue. Subcontractors come and go, and when people are focused on delivering results on deadline, administrative tasks can fall through the cracks, putting companies at risk when they least expect it. “Certificates of insurance, on a large scale, impact the environment for commerce to occur,” says Lee Roth, vice president of Ebix BPO. “People need to know there’s protection should there be a need for it down the road.”

Here are some of the issues that can arise when homebuilders manage COIs.

Gaps in Coverage

In other industries, when companies collect certificates and separate endorsements, the additional insured can be mentioned on the face of the certificate, Roth says. But in construction, there needs to be a separate sheet. The additional burden of extra sheets raises the possibility that something might be lost or not included, leading to gaps in coverage.

Exclusions are a challenge as well: With COIs in the homebuilding industry, exclusionary language limits the indemnity the companies are willing to provide, Roth says. These exclusions may include things like using certain types of building supplies or working on multifamily residences, he says. Whether it’s endorsements or inclusions, the sheer number of them can mean additional risk of error, increasing liability.

Tracking Volume

Homebuilders that work in several states face even bigger challenges, Roth says. Not only are they dealing with large volumes of subcontractors, but also with different sets of laws and regulations in different locations. The sheer number of transactions and COIs required can be overwhelming, again putting the homebuilder at risk for incorrect coverage or being liable in situations when they thought they were protected.

As a result, the risk to the homebuilder can be substantial, Roth says. Too often companies try to manage the issue with their own spreadsheet or system, but the number of endorsements and variations can quickly put that out of reach. Some sort of software solution or vendor-partner usually is needed to ensure there are no gaps in the coverage purchased and maintained by contractors.

Prioritizing Operations

Homebuilders tend to be ground-up operations that don’t have the training, experience or headcount to dedicate someone to managing COIs. “A company may have the staffing who can do the transactional work — collection and verification — but they don’t have the insurance expertise,” Roth says. “Conversely, people responsible for risk will have the expertise, but maybe not the resources to take on the administrative burden.”

Homebuilders that want to protect themselves and their operations must take managing COIs seriously, and dedicate the necessary resources to handling them properly. Working with a vendor partner can help and also free up resources so the company can focus on its core work: building new homes for waiting families.

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