07/05/2022

Prevent Uncovered Losses by Aligning Coverage With Third-party Contracts

It's important to review and identify where risk can be transferred

Today, several related issues are complicating contractual risk transfer: supply chain challenges, increased material costs, project delays, changing lease agreements, and the need to address all these problems by changing or adding new vendors. Amid this turmoil, insureds must continue to correctly identify risk transfer opportunities and manage risk assumed under contracts with improved contract language and alignment of policy terms with contractual obligations. Failing to carry out these steps effectively can result in massive uninsured losses.

Adding to the growing pains for third-party contracts is rapid digitalization, which is the No. 1 trend for 2022, according to the report “8 Contract Management Trends to Watch in 2022.” Nearly 68 percent of organizations say that digitalizing manual processes is the top priority when contracting with vendors and other third parties.

While this trend is likely to increase efficiencies and decrease human error, its reliance on computer technology will also increase cyber exposures. A few years ago, even before the digital trend had hit its stride, 59 percent of companies were experiencing cyber exposures caused by one of their vendors or third parties.

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