PROTECTING THE POSSIBLE
Wrap-Up Insurance
A wrap-up insurance program is a risk management approach that provides coverage for all eligible, enrolled contractors and subcontractors involved in a construction project. By consolidating coverage into one set of policies, the program offers protection against various construction-related risks and uncertainties while reducing the exposure to costly cross-litigation.
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COVERAGE SNAPSHOT
Tailored Wrap-Up Insurance
When managing risks for construction projects, there are a few ways to approach your insurance needs. The traditional approach is to have the project owner, construction manager, primary contractors and subcontractors all carry their own lines insurance. There are also owner/contractor programs that focus on subcontractor policy vetting and correction to help ensure risk transfer. The consolidated approach is when the project owner or construction manager purchases the insurance (called a “wrap-up”) on behalf of the project.
Types of wrap ups include:
- Owner Controlled Insurance Program (OCIP) – Owner purchases insurance coverage for a single project.
- Contractor Controlled Insurance Program (CCIP) – Contractor purchases insurance coverage for a single project.
- Rolling Owner Controlled Insurance Program (ROCIP) – Owner purchases insurance coverage for a series of projects.
- Rolling Contractor Controlled Insurance Program (RCCIP) – Contractor purchases insurance coverage for a series of projects.
Coverage options:
- Two-line: Workers’ compensation, general liability, and excess liability – popular with contractors and owners involved in commercial construction. These programs are typically written in the standard market and contemplate large retentions and/or deductibles.
- General Liability (GL) only: General liability and excess liability – Typically written in the excess and surplus lines market, these programs are popular with developers and residential contractors and typically do not require large retentions or long-term collateral obligations.
WHY WRAP UPS
Protect your projects and your profits
Wrap-ups are increasingly popular because they offer a comprehensive solution for managing construction risks and potential profit and are often seen as a valuable addition to risk management.
Why are wrap ups popular?
- Potential savings compared to traditional insurance
- Rates typically fixed for the entire project
- Enhanced M/W/DBE participation
- Wrap-Ups are now a mature insurance product with a broad supply of markets and innovative administration software
- Allows for best possible terms and conditions
- Can be used to insulate corporate insurance program from:
- Heightened risk of construction
- Uncertainty around availability of subcontractor insurance
- Uncertainty around anti-indemnity statutes
- Perceived as a “value-added” risk management service
- More frequently requested by project owners
- Cost Certainty through the life cycle of the project
- Coverage is provided through the Statute of Repose
- Reduces the likelihood of cross litigation amongst project stakeholders
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KEY DIFFERENCES
Understanding what’s right for your needs
Understanding the difference between owner-controlled insurance programs (OCIPs) and contractor-controlled insurance programs (CCIPs) is crucial in the construction industry and enables project owners and contractors to select the program that best fits their needs to effectively manages project risks. It can also enhance their ability to negotiate terms, avoid coverage gaps or overlaps in policies, and help ensure cost efficiency.
Financial Responsibility
- CCIP: The lead contractor, aka Sponsor, shoulders the financial burden for premiums, large deductibles and collateral. This incentivizes contractors to prioritize safety measures and risk mitigation strategies to minimize claims costs. However, it also means they are directly responsible for all administrative and deductible obligations and forgo the ability to tender claims down to the responsible subcontractor(s).
- OCIP: The project owner, aka the Sponsor, pays the premiums and deductibles, as well as providing collateral, if needed. This approach appeals to contractors who are not directly responsible for insurance costs or administrative responsibilities. However, it shifts the financial risk to the owner, who may have less control over loss prevention and claims mitigation efforts.
Control and Administration
- CCIP: A contractor assumes responsibility for program design and administration. This grants them greater control over several areas, including:
- Policy Selection: The contractor can choose policies that best suit the project’s specific needs and risk profile.
- Claims Management: By managing the claims process, a contractor can expedite the resolution process and reduce the claims costs. This can lead to greater negotiation positioning with carriers on subsequent projects.
- Risk Mitigation Strategies: As the policyholder, the contractor has the authority to implement proactive safety measures and risk management strategies to prevent accidents and claims, which helps lower premium and deductible costs. However, greater control also comes with administrative burdens.
- Program Administration: As the Sponsor, the contractor is responsible for ensuring eligible parties are enrolled and compliant with the program parameters and subcontract requirements.
- OCIP: The owner takes a more active role in program administration. This gives them control over:
- Policy Terms and Limits: As the policyholder, the owner can tailor the policy to their specific risk tolerance and desired level of coverage.
- Transparency and Oversight: By directly overseeing the program, owners gain greater control over alignment with risk management goals and budget expectations.
- Program Administration: The owner assumes responsibility for ensuring program administration is compliant.
Potential Cost Advantages
- CCIP: Contractors with a strong safety record may qualify for lower premiums due to their preferred risk profile. This translates to potential cost savings for the project. However, this means that the contractor also takes on additional costs if/when claims occur.
- OCIP: Owners might benefit from economies of scale, especially with large, multi-year projects. By insuring multiple projects under one OCIP program, they can negotiate more favorable terms and lower premiums from the insurer.
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