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Certificates of Insurance...What Do They Really Cost?

Author: Bill Wilson

Is there any other nonrevenue generating agency activity that takes as much time and causes as much consternation as processing certificates of insurance and related documentation? Have you ever taken the time to calculate what certificate processing costs your agency in time and money? You might be shocked.


Probably the single most frustrating area of agency operations centers around certificates of insurance. At one time in your agency, certificates were probably a rarity, particularly outside the construction industry. Today, it seems like EVERYBODY is on the certificate bandwagon. Just recently we were sent an inquiry where a lender on a real estate property wanted a certificate confirming additional insured status on the property insurance, general liability, AUTO, and (no kidding) workers compensation.

Operational Costs

One consultant estimated the cost to issue a plain vanilla ACORD 25 at $7 and if some customization was required, it could be as much as $15-18 (or more). An agency's internal study indicated that an agency management system-produced certificate without any kind of Q&A addendums cost an average of $6.71.

These figures could be even higher when you get into requests that some third parties make that involve lists of questions in addition to the certificate. One agent was given a 40-question survey he was required to complete, along with an “affidavit” warranting coverage that coverage was in place and conformed to the construction contract (of which he had read 2 of 88 pages). This affidavit was to be notarized and witnessed by a disinterested third party and sent to the certificate holder via certified mail. All for free.

One producer and a CSR spent a total of two and a half hours on one certificate that had to be redone 4 times. The last time they had to reissue it because a field on the form was not applicable and they had entered “NA”…the certificate holder would only accept an entry of “N.A.” so they had to reissue the certificate and add the two periods after the “N” and “A”. The contractor was due $300,000 on a job and the GC refused to pay until the certificate met their satisfaction to the letter (or better, punctuation mark).

We have been advised by a number of agencies that they are issuing upwards of 30,000 certificates a year (one medium-szied agency was doing over 40,000) and sometimes 3,000-4,000 for an individual insured annually…i.e., close to a dozen a day for some accounts. Two agencies had full-time staff devoted to this function, one agency using two people they call the “certificate ladies.” If your agency issues an unusual amount of certificates for particular insureds have you ever done a profitability study to determine whether these accounts might be COSTING you money? One estimate is that agencies invest over a BILLION dollars a year in processing endorsements. What's your share?

Another agent estimated that 3% of their commercial lines revenue went to pay for their certificate operation. That’s a big chunk of agency profit being invested in an activity that is being provided to third parties virtually free of charge. It was estimated that their cost of issuing certificates is double the cost just 3 years ago due to the increase in requests and the complexity of requests. Needless to say, unlike insurers who can increase premiums when expenses rise, agents have no way of passing along these costs unless they can (and are willing to) charge a fee for this service. If they charge a fee, they open a potential E&O exposure in that a fee might be construed as consideration, creating a contract out of the certificate that might be actionable against the agent.

E&O Costs

Clearly, for many agencies, certificates have become a costly black hole that takes valuable time away from servicing clients while creating unnecessary expense for the agency, not to mention increasing its E&O exposure. For example, consider these E&O claim statistics:

  • In 2007, E&O claim frequency was up 28% for certificate-related claims.

  • 1 in 25 E&O claims involve certificates (higher in some states).

  • 36% of these claims involve additional insured status (or lack thereof).

  • CSRs are most often responsible for certificate claims.

  • Certificates issued on lapsed coverage are more common in larger agencies.

If those don’t grab your attention, consider three recent E&O claims:

  • The insured requested an additional insured endorsement as required by the construction contract but the agent failed to request it. $180,000 settlement cost.

  • An agent used a blanket additional insured endorsement. However, it required that AI status requests arise from written contracts. There was no written contract so the blanket AI endorsement was not triggered. $445,000 settlement cost.

  • An account was nonrenewed and the agent could not find another market. The insured found an E&S carrier but the carrier couldn’t or wouldn’t issue certificates of insurance. As a favor to his former client, the agent used the agency’s agency management system to issue 4,000 certificates. As it turned out, the coverage was not actually in force. Following several accidents, including a fatality, an E&O lawsuit was filed. $10,290,000 settlement cost. (Yes, $10+ MILLION)

Essentially, the agency is providing FREE services to parties (certificate holders) with which the agency has no business relationship, services that create significant operational expenses for the agency and sometimes catastrophic legal claims. Some certificate holders arrogantly view insurance agencies as government agencies that offer services to which they’re entitled.

Do you have certificates of insurance stories to tell? If so, email We're particulary interested in onerous contract or insurance requests that document the hoops agents are often expected to jump through to appease third parties.

The Big "I" has published a white paper and a number of articles that address many of the problems faced by agents when dealing with certificates.

Be sure to check out the "Featured Resources" area of the VU for a compiliation of certification related documents.

Last Updated:  November 3, 2010

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