What’s the Purpose of Requiring Certificates of Insurance from Tenants?

What’s the Purpose of Requiring Certificates of Insurance from Tenants

As a Commercial Real Estate owner, you are not only tracking rent payments and lease expirations. But, you also have certificates of insurance to track.

Given all your constraints on time, why would you focus on gathering certificates of insurance (COI) based on the requirements of your leases? Do those matter? After all, doesn’t everyone have insurance? NO, is the short answer to this question – not everyone has insurance. Here are a couple of the many things to consider when it comes to why you should consider a system around proper certificate gathering and tracking. Even more importantly, we share the risk to you as the owner when you don’t have your COIs managed well.

Holistic Risk Management 

When insurance is discussed, it is almost always related to risk transfer. That is, paying a premium to an insurance company or risk-sharing pool. This transfers certain risks away from you as the insured. While this is crucial to proper risk management to protect against critical, catastrophic, and potentially bankrupting events, it is not the only consideration with holistic risk management. Risk avoidance, risk reduction, and risk retention are strategies to keep in mind. 

Lease agreements with proper legal language are a way to transfer risk away from the landlord contractually. Plus, it provides additional insured status to a tenant’s policy if litigation is brought against the landlord due to the tenant’s operations. Lease agreements frequently require tenants to ensure the property they are occupying as a contractual risk transfer tool. However, proper certificate gathering and approval are required to reduce the risk of tenants not complying with the lease agreement regarding their insurance coverage. While somewhat time-consuming, it can have a massive impact on future events and claims that could arise. Using products to track COIs such as STRATAFOLIO that provide a mechanism for monitoring COIs helps reduce your risk.

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Lessors Risk Insurance Requirement

Another consideration for landlords is their insurance contract. The policy may require a tenant certificate of insurance verification. As insurance advisors, we often see landlords only begin to focus on this when their own insurance company takes some action related to certificate gathering noncompliance. This include but are not limited to:

  • Charging an additional premium for noncompliance
  • Increasing renewal rates for noncompliance
  • Denying claims based on noncompliance

When a landlord is going through their insurance underwriting process, one of the common questions asked of the landlord are their requirements around tenant policies. Specifically, insurers want to know the types and limits of insurance and proof of coverage. If a landlord states they track this for insurance approval and does not, it could lead to a discussion around material misrepresentation. Ultimately this could lead to the actions noted above.

The other data elements insurers are primarily looking for are:

  • Geographic location and proximity to emergency services, such as the nearest responding fire department
  • Rent roll and risk profile of commercial tenants ( i.e. a retail clothing store being less risky than a fireworks retailer/distributor)
  • Insurance loss history
  • Lease agreements (risk transfer language, minimum limits of insurance, additional insured status, etc)
  • Building valuations and updates (roof, hvac, plumbing, etc)

Summing Up 

These are just a couple of the reasons to have an emphasis on the COI process. While important, we recognize this can be cumbersome, overwhelming, and confusing. Fortunately for those who feel this way, tools, resources, and software are available to help in this process. We recommend consulting with your current insurance advisor or reaching out to a member of our team to discuss. Please don’t hesitate to reach out to start a conversation around this or other risk management and insurance concepts. Thanks for reading!

Joe Vens is a Risk Advisor with First MainStreet Insurance (FMSI), specializing in risk management and insurance for large or complex commercial accounts. Joe serves as the Lead Advisor for FMSI’s Public Entity Specialty Group.


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What’s the Purpose of Requiring Certificates of Insurance from Tenants?
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What’s the Purpose of Requiring Certificates of Insurance from Tenants?
Most commercial leases require tenants to provide certificates of insurance. Learn why it is vital for companies to manage and track COIs.
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