Automated Certificate Systems: How Accurate Are They?

by the IIABA Virtual University Faculty

QUESTION:

'At this week’s weekly staff meeting, we were reviewing our policies and procedures for issuing Certificates of Insurance. In that discussion, a question arose regarding ‘direct bill’ policies and policies that might be financed.

'The issue regarding direct bill is what if we go online to that particular company’s Web site to determine whether a policy is in force, cancelled, or reinstated, and the information is not necessarily up-to-date?

'Here’s a true scenario:

'ABC Co. (a direct bill policyholder) calls with a request to issue a COI on 10/30/02 because they’re renting a piece of equipment. The CSR goes to the insuring company’s site and it shows that the IM coverage is in force. The COI is issued. The next day, we get a notice that the IM was cancelled 10/30/02. We go back to the Web site to verify and, sure enough, it shows policy cancellation.

'On the flip side, we go to a site to issue a COI for ABC under their 10/30/02 request, and see that WC coverage was cancelled 10/30/02 for non-payment. We advise the insured that the COI can’t be issued for WC. The insured states that payment was made and the information is incorrect, and we advise that the COI still can’t be issued. On 10/31/02, we go to the site and it shows that coverage was reinstated 10/30/02 as payment was received. Timing is everything, I guess.

'The question is, how deep into the insuring company do we have to go to verify the status of a direct billed policy? If we have to call to verify the ‘at this very minute status’ on every direct billed account that requests a COI, we’ll be on the phone all day. (As an aside, this is what our CSRs are doing now. I couldn’t understand the difficulty in getting on-demand COI issued or why they were behind in their work.) Or, can we hold that the information we viewed on the site is accurate as of the time and date we went to that site, and can we issue or not issue a COI accordingly?'

This question sounds like a 'systems' or procedural problem of the insurer that needs to be corrected to ensure timely entry into the system. If agents must rely on the system for information, the carrier has an obligation to design and operate it in a manner that ensures that the information is accurate and up to date. If the procedures permit, encourage or require that agents use it to document coverages, the question is whether a policy cancellation that’s not indicated as such in the system would hold up in court.

We ran this one by our agency management and E&O gurus. Here are their responses:

FACULTY RESPONSE

On this one, I’d establish a policy and get a sign-off from the insurance company. In other words, if you check status, the policy is in force and the COI issued, and the next day the policy is cancelled as of the previous day, you still followed your procedure. This might spur the company to make updated information available so that you can make a more informed decision.

The other part I’d look at is, if you requested that the company issue the COI (in theory), what info would they depend on to make sure the coverage was in force? If they used the same source, they would have also issued the COI.

FACULTY RESPONSE

I believe this gentleman has hit on a real issue that could become an E&O exposure. It’s a carrier problem and issue, but could easily become an agency problem if coverage is denied due to non-pay or lapse.

For instance, if the policy is active when viewed online but cancels while the COI is issued, how could the agency prove that they issued the COI based on the carrier’s Web site or database indicator that the policy was active at that time?

The carrier must acknowledge that it will accept COIs issued based on information current to the agent at the time of inquiry carrier, regardless of consequential cancellation after that point. To protect the agency, this acknowledgement must be in writing and maintained with the agency’s E&O policy. Better yet, the policy status should be validated at the time of issuance of the COI by a print-screen of the coverage status when the COI information was solicited.

FACULTY RESPONSE

With insurance companies that send out paper cancellation notices, I wouldn’t send out a COI until I was sure the money was received. If the insured is a late-paying account, the fault is theirs. If the insurance company requires us to check electronically with them, then your method sounds correct. Yes, many insurance companies don’t post on an up-to- the-minute basis. Some waiting on late paying accounts is probably unavoidable. It’s even worse if the check is lost in the mail or the insurance company applies it incorrectly.

FACULTY RESPONSE

This question is interesting and shows that technology has to take a second seat to insurance knowledge and judgment. The certificate simply states the status of coverage as of the moment of issuance. If all indications (your records and the carrier’s from the Web site or other information accessibility) are that the policy is active, you should issue the certificate.

On the other hand, if the information is that the policy is cancelled, checking to see if the policy has been reinstated is an important element of client service (e.g., the client might unfairly lose a job for which they’re bidding and have recourse against your agency for not 'going the extra step').

FACULTY RESPONSE

This is scary. First of all, another blow to the paperless society — a 'print screen' every time you issue a COI? ARGH! It seems that a simple documentation at the time the check was made (as with recording phone calls) would suffice. What would be the implications of a client using a third-party certificate vendor to issue a COI and later finding that coverage had ceased and the vendor’s system hadn’t been updated? Is that the agent’s responsibility? If so, will they have to check every insured every day, then log into the vendor’s system to update the database?

So much for simplifying and streamlining agency processing. That sucking sound you hear is the remaining agency profits going down the tubes over one more burdensome procedure, especially one created by an (dare we beat this into the ground?) essentially meaningless piece of paper.

FACULTY RESPONSE

I tend to agree, but I’m not sure if there’s a practical solution. An even bigger problem is using third-party certificate vendors. If the carriers can’t keep their own systems current, I wonder how accurate the information in third-party providers will be.

FACULTY RESPONSE

My only concern with some of the answers above is that not all carriers will cooperate in the event of an E&O claim. So, relying on any strategy that says, 'Well, if we give the wrong information because the carrier’s system was wrong, it’s the carrier’s problem' won’t necessarily solve an agency’s problems.

If the system is wrong on a regular basis, I think it’s safest to not use it. Although the print screen should provide adequate documentation, I’d still avoid it. The carrier or third-party vendor could be the negligent party — but who do you think the insured will sue or enjoin in a suit?