Third-Party Contracts: 3 Steps to Reduce Risks and Costs
Learn today's best practices to prevent financial loss.
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Business contracts are changing – are yours keeping pace?
With every third-party contract, organizations must evaluate contractual exposures to properly transfer risks, negotiate favorable terms, and align insurance coverage to fully protect contractual obligations. Taking proactive measures can help safeguard against potential liabilities and provide comprehensive protection.
10%
At least 10% of third-party vendors fall out of insurance compliance without notifying the companies that hire them.
20%
The use of insurance, indemnification, and limitation of liability clauses in business contracts has increased 20% over the past five years.
$1.5M
A manufacturer’s lease required them to hold the property owner harmless from liabilities related to hazardous substances. After showing that liability exposures were minimal, USI negotiated lower limits in the contract, reducing the manufacturer’s premium by 75%.
Transfer Risk to Third Parties
Case study: A general contractor hired a mason to do exterior work on a new building. The masonry subcontractor dropped materials on the street and injured pedestrians. The mason didn’t have coverage to indemnify the general contractor, whose insurance policy had to pay the associated claims costs of about $200,000.
Results: The general contractor partnered with USI, and we transferred liabilities to third parties as appropriate, eliminating certain risks. USI then covered other risks with insurance to avoid further financial loss.
Step 1
STEP 2
Negotiate Contract Language to Reduce Risks and Costs
Case study: A manufacturer’s new lease required them to hold the property owner harmless from liabilities related to hazardous substances, with limits of $25 million — which translated to a $100,000 premium. After completing a comprehensive risk assessment, benchmarking, and analytics study, USI demonstrated to the property owner that their liability exposure was minimal.
Results: USI negotiated lower limits in the contract, reducing the premium to $25,000 — a 75% reduction.
Appropriately Assume Risk
Case study: A thief stole a motor carrier’s trailer (worth about $100,000) along with $150,000 worth of client cargo. Because the motor carrier didn’t have adequate coverage for theft incidents, the shipper seized the $7,500 payment owed to the motor carrier, resulting in a total loss of $257,500.
Results: Following the incident, the motor carrier partnered with USI to receive a comprehensive review of all contracts and relevant insurance policies, transferring the appropriate liabilities to third parties and covering other risks with insurance.
STEP 3
Read our article to discover how adjusting third-party contracts can help reduce risks and costs.
Connect with one of our experts to schedule a consultation.
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Step 2
Step 3
Review all contracts to determine where risks can be transferred (to suppliers, contractors, and other third parties).
Collaborate with attorneys and your insurance broker to establish favorable contract language for retained and assumed risks.
Compare current insurance policies with contractual exposures, aligning coverage to fully protect contractual obligations.
Step 1
Review all contracts to determine where risks can be transferred (to suppliers, contractors, and other third parties).
STEP 2
Negotiate Contract Language to Reduce Risks and Costs
Case study: A manufacturer’s new lease required them to hold the property owner harmless from liabilities related to hazardous substances, with limits of $25 million — which translated to a $100,000 premium. After completing a comprehensive risk assessment, benchmarking, and analytics study, USI demonstrated to the property owner that their liability exposure was minimal.
Results: USI negotiated lower limits in the contract, reducing the premium to $25,000 — a 75% reduction.
Collaborate with attorneys and your insurance broker to establish favorable contract language for retained and assumed risks.
Read our article to discover how adjusting third-party contracts can help reduce risks and costs.
Connect with one of our experts to schedule a consultation.
Read Article
Contact Us