How An Ex-Mod Projection Can Help Control Work Comp CostsWhen two companies agree to do business together, they need to trust each other. Nonetheless, today’s business deals never rely on handshakes. Carefully-constructed contracts lay out liability issues and insurance requirements to ensure each party knows exactly what the other expects of them. This is important, but it also creates an administrative burden. Automation can help ease that burden and provide business partner transparency.
Paperwork Problems Can Break Business Deals
Some business deals are time sensitive. Unfortunately, even if both parties want things to move forward, processes can get stuck.
For example, imagine one company manufactures chairs and another sells chairs to restaurant chains. The chair manufacturer and the restaurant supplier want to become business partners. Both believe the proposed arrangement will benefit them financially. However, there are liability concerns: if a problem with the chairs results in injury, the restaurant supplier wants to make sure the chair manufacturer will take financial responsibility. Similarly, the chair manufacturer wants the restaurant supplier to take responsibility for any financial losses caused by transportation issues or damage in transit. Before they can finalize the deal, the two companies want to see proof of insurance.
Usually, this shouldn’t be an issue. In this case, though, there’s a problem with the chair manufacturer’s certificate of insurance, leading to a delay in the restaurant supplier receiving the necessary forms. In the meantime, a big client wants an order of chairs. The restaurant supplier has no option but to use another vendor to complete the order.
In situations like this, a streamlined system for verifying insurance could help. However, that’s not the only reason why compliance management automation is critical.
Keeping Up with Insurance Requirements Is a Headache
Most of the time, it’s not the initial proof of insurance that’s the issue – the real problem lies in verifying that the other company continues to meet your insurance requirements.
Let’s return to our example with the chair manufacturer and restaurant supplier. The chair manufacturer eventually provides the required certificate of insurance and the two parties finalize the deal. The chair manufacturer outfits the restaurant supplier with many chairs over the years, and both parties are fully satisfied with the arrangement.
Then, a flood devastates the main storage facility the restaurant supplier uses. The company was using the location to store a shipment of chairs along with goods from other vendors. The owner of the chair manufacturing company is upset to hear this but believes it should only be a temporary setback because the restaurant supplier has adequate insurance coverage. However, the restaurant supplier no longer has this coverage – it lapsed several months ago. The restaurant supplier files for bankruptcy and the chair manufacturer has no way to recover the loss.
Most insurance policies renew annually. Since coverage terms may change, companies also need to meet certificate of insurance requirements each year. There’s also always a chance insurance policies will lapse between renewals due to nonpayment. Keeping track of insurance forms creates an administrative burden, especially in situations where multiple vendors and service providers are involved. If something falls through the cracks, you may lack insurance when you need it. At that point, it will be too late to do anything about it.
Risks Are Growing
Business has always involved risk, but risk management is becoming more complicated. For one thing, the number of risks is growing as new threats emerge.
On top of that, business relationships are becoming more complicated as companies form bigger ecosystems to meet the expectations of modern consumers. According to McKinsey & Company, a third of total global sales output could become part of the network economy by 2030. Although business ecosystems offer many benefits for companies and the customers they serve, managing all of these relationships requires significant resources.
Automation simplifies compliance. When you automate compliance, software sends out requests for documents automatically. Once the other company has uploaded the documents you’ve requested, the automated systems extract the pertinent information to confirm your business partner is meeting the terms of the contract. If the company isn’t, the system will send a notice. No one has to worry about requests falling through the cracks or about overlooking changes in insurance terms.
Heffernan Insurance Brokers has partnered with TrustLayer to offer automated compliance management. Learn more.
