Managing Vendor Risk in Claims Operations

Every vendor partnership adds a layer of complexity—and potential exposure—to the claims process. While third-party providers play a vital role in delivering timely, cost-effective services, they can also introduce risk in the form of liability issues, compliance failures, or reputational damage.

For claims professionals, managing vendor risk isn't just about avoiding worst-case scenarios—it's about building a resilient vendor ecosystem that protects policyholders, claims integrity, and the insurer’s brand.

Start with Strong Contracts and Clear Scope

Many vendor-related issues stem from unclear expectations or vague responsibilities. The solution? A contract that leaves no room for interpretation.

Key clauses to include:

• Licensing and certification requirements: Define which credentials are mandatory by region or job type.
• Indemnity and liability terms: Clearly outline who is responsible in the event of damage, injury, or error.
• Documentation and reporting obligations: Require timely job updates, estimates, and completion reports.
• Termination rights: Specify how and when the relationship can be ended, and under what conditions.

Don’t treat these contracts as boilerplate—review them regularly to ensure they keep pace with operational changes and emerging risks.

Verify Insurance Coverage and Risk Transfer

Make sure each vendor carries appropriate and up-to-date insurance. This protects not only the vendor but also the carrier and policyholder.

• General liability with adequate limits to cover property damage or bodily injury
• Workers’ compensation coverage for all employees or subcontractors on-site
• Professional liability or E&O insurance for vendors offering specialized services (e.g., engineers, consultants)

Request certificates of insurance annually—and track expiration dates. Don’t let coverage lapses become your liability.

Monitor Compliance and Red Flags

Managing vendor risk is an ongoing process. Establish a system to monitor for red flags, such as:

• Consistent delays or missed SLAs
• Multiple complaints from policyholders
• Failure to follow safety protocols or jobsite guidelines
• Repeated documentation errors or lack of responsiveness

Address issues promptly through coaching, probationary periods, or reassignment—and document all performance concerns for your records.

Establish a Dispute Resolution Process

Even with the best planning, disputes may arise. Having a structured resolution pathway minimizes delays and protects client relationships. Consider implementing:

• Escalation protocols: Define when and how issues move up the chain internally or with the vendor.
• Mediation options: In multi-party disagreements, a neutral mediator can often preserve relationships and avoid litigation.
• Clear refund or rework policies: Ensure vendors are prepared to correct errors without dragging out the claim timeline.

Quick, fair resolution builds trust with both vendors and policyholders.

Final Thoughts

Vendor partnerships are an extension of your brand—and your risk profile. By putting robust contracts, proactive oversight, and structured accountability in place, claims professionals can reduce liability while enabling vendors to succeed.

In a world where one poor vendor experience can ripple across social media and client relationships, smart risk management isn’t just a best practice—it’s a competitive advantage.