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Property Casualty

Third-Party Contract Management — It’s Not Just About Purchasing Insurance

Miranda Childers
Miranda Childers
Holmes Murphy

Risk transfer — these are two words that when you ask most insurance brokers and insurance companies what that means, they’ll most likely say “purchasing insurance.” And, they’re not wrong! But, that’s not the only type of risk transfer an organization should be using. Unfortunately, because insurance brokers and companies live in the world of insurance, contractual risk transfer is often forgotten.

Time and time again, I speak with prospective clients who think their insurance program is fine, but when I ask them about contract management with customers and vendors, they get a concerned look on their faces. Some are trying, but they simply don’t have the capacity to manage this type of task. Other clients have protocols in place that aren’t being followed at all.  And, still others, haven’t even thought of it.

What Is Risk Transfer?

In its simplest form, it’s a transfer of risk from your organization to a . The third party can be:

  • the insurance company itself from which your insurance policies are purchased
  • the vendor you’re using to store your data
  • the organization you’ve contracted with to recruit and hire employees
  • even that manufacturer you’ve hired as part of the manufacturing process for your product

Each of these organizations have responsibilities to you, and as such, should be outlined in your contract.

Risk Transfer Considerations

Here are some common considerations when talking about risk transfer with third parties.

Insurance Coverages to Require

General liability, auto liability, and workers’ compensation are typically the most common insurance coverages your third-party vendor/company should have. Depending on what service/product the third party is providing to your organization, other coverages, and may need to be included as well such as:

Additional Insured Language

This should not be confused with purchasing your own insurance policy. This is more of a secondary protection, allowing you to have protections under another party’s policy. Not all policies offer additional insured language, and many contracts are poorly written with this requirement for all lines.

Waiver of Subrogation

This voids or “waives” the insurer’s right to recover losses from the responsible party. This can minimize the risk of lawsuits by allowing each party’s insurance to cover the loss.

Clarity and Specificity

Clear expectations, definitions, and responsibilities are vital to ensuring any disputes will be resolved quickly and out of court.

Partner with an Insurance Broker

Additionally, you should involve your insurance broker both in the negotiation of contracts already written and in writing your standard contracts. Just as these contracts are negotiable, so is a lot of the language within your insurance policies. Making sure your insurance program will respond according to what you’ve agreed to in your contracts is vital!

Have questions? Contact us, and we’ll be happy to help you out!

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