For large construction projects where there are multiple participants involved – from the owner, construction manager, and general contractor to subcontractors – wrap-up insurance programs are viable solutions and can provide the cover needed. There are two common types of wraps: An Owner-Controlled Insurance Program (OCIP) where the project owner can purchase an insurance policy that will cover the participants involved in the construction project; and a Contractor- Controlled Insurance Program (CCIP) where construction managers and general contractors purchase the policy under which everyone involved in the project is covered.
Wrap-up programs help lower the cost of insurance, reduce the need for tracking subcontractor expenses, often provide the ability to obtain higher limits, help mitigate the risk of subcontractors’ potential less-than-adequate insurance and coverage gaps, centralize safety and risk management, streamline claims processing, reduce disputes among insured parties, and provide contractors and subcontractors with access to projects that they may not have been able to properly insure.
How A CCIP Works
A CCIP may be implemented to cover a single project, or it can cover all eligible projects enrolled into the program on a continuous or “rolling” basis. The CCIP puts together under a single policy General Liability, Excess Liability and Workers Compensation, streamlining the coverage process while allowing various contractors and subcontractors to be covered during the duration of the project. The program responds to claims that arise out of operations at the covered project site during the construction period and liability from completed operations through a specified period—ideally the applicable state statute of repose. Subcontractors enrolled in CCIPs remove insurance costs from their contracts, and the general contractor applies the avoided costs to the purchase of the CCIP.
By implementing a CCIP and controlling claims costs through rigorous loss control and claims management procedures, a general contractor can save significantly on insurance costs compared to traditional insurance cost.
There are also risks that come with a CCIP. Most programs include a significantly high deductible depending on the jurisdiction. Total deductible losses will typically be capped based on a fixed percentage of payrolls, but a general contractor most likely would not be able to charge the maximum loss cost to his or her projects and remain competitive. Failing to control losses could result in significant financial loss. Also, since wrap-up programs tend to encompass several types of coverage for a number of different parties, program sponsors generally inherit the administrative tasks involved. Beyond purchasing the wrap-up program, sponsors may be required to review and approve program documents, meet with underwriters and review claims. To address these issues, plan sponsors can designate or hire individuals to help administrate the programs, which can add to overall costs.
It’s important to note that a good CCIP candidate is one with a highly developed safety culture, experience in managing claims under a high-deductible program, a robust subcontractor pre-qualification program, well-established relationships with subcontractors in the areas where they operate, and a significant percentage of their revenue from established customers to meet the CCIP minimum premium requirements.