Wrap-Up Insurance: OCIPs and CCIPs

Embroker helps you get wrap-up insurance programs to provide general liability protection for not only the owners of construction projects but also the contractors and subcontractors that are involved in the project.

What is Wrap-Up Insurance?

Wrap-up insurance is a policy for either very large construction projects that cost upwards of $10 million ($3-5 million in California) or for a string of smaller but related construction projects that are just as expensive in total.

A wrap-up insurance policy provides everyone involved in the project peace of mind, knowing that all parties participating in the construction project have the right coverage and are protected properly through one, holistic program.

Get a quote

OCIPs vs. CCIPs

There are two types of wrap-up insurance programs: Owner Controlled Insurance Programs (OCIPs) and Contractor Controlled Insurance Programs (CCIPs). The difference between the two is fairly apparent; OCIPs are wrap-up policies that are sponsored by the owners of the construction project while CCIPs are sponsored by the main general contractor hired to work on the project.

The party that sponsors the wrap-up policy is the party that will be responsible for procuring the coverage as well as paying for the insurance program and administering it.

General Benefits of Wrap-Up Programs

Regardless of whether the owner or the contractor is going to insure the project, everyone involved needs to take a look at the pros and cons of using a wrap-up program and then decide whether it’s the right thing to do for the project in question.

If you’re not certain what the exact benefits of such a move would be, here are a few advantages of wrap-up programs that most insurers tend to agree are beneficial for both the owners and contractors.

Greater Control

Wrap-up insurance programs allow you to take full control of the coverage related to your project without having to worry about what everyone else involved in the project is doing. If you are going the traditional route and worrying only about your insurance as the owner or contractor of the project, you still can’t be sure that your subcontractors are all going to get the proper coverage they need to get. Even if you have specifically stated in your contract that your subcontractors need to be insured, you can’t guarantee that they are going to get proper coverage on their own.

Having a wrap-up program in place alleviates those worries and gives you full control over the project’s coverage. You don’t have to worry about the exclusions or limitations of individual liability policies that other parties involved in the project have purchased. The controlling entity of the wrap-up coverage has more control over every aspect of the coverage, including limits, exclusions, and the general types and scopes of insurance policies being purchased.

Easier Administration

As already mentioned, the wrap-up allows you to not have to worry about the coverage of all of the lower-tiered participants in the project and since everyone involved in the project is basically a “named insured,” administration becomes a lot easier as a result. With a wrap-up program, it’s much easier for the owner or contractor to make sure that everyone is complying with policy terms and it’s much easier to track claims, request COIs, and more.

More Manageable Coverage

There are two very significant benefits that a wrap-up program provides in terms of making your coverage more manageable and they are that you can secure both uniformity and continuity of coverage in one step. We’ve already talked about the uniformity aspect in terms of administration but continuity is another benefit you will receive from a wrap-up program.

A wrap can continue to provide coverage for everyone involved even after the project has been completed. In many states, liability issues extend passed the completion date of the project, sometimes for years. If you are insuring the project traditionally and a subcontractor faces a claim related to the project several years later but that subcontractor has not renewed their policies, you could end up flipping the bill for their oversight. A wrap-up gives you the ability to keep the policy in place for as long as the statute of limitations lasts at a single price and without having to renew year after year.

Better Safety Measures

It’s a lot easier for the controlling entity of the wrap-up program and the wrap-up carrier to come up with a high-quality safety and security program when all of the policies are under one roof. One of the most important aspects of maintaining high safety standards is consistency and wrap-up programs allow owners and contractors to clearly define their risk management standards and find optimal ways to ensure the safety of the workers and everyone else involved in the project.

Lower Costs

Purchasing individual policies instead of buying one wrap-up policy to cover the entire project will almost always be the more expensive route to take. One of the primary intents of a wrap-up program is to decrease the cost of coverage by purchasing one, aggregated policy.

Another way to further reduce costs is to make sure that your wrap is written on a loss-sensitive basis, which means that your premium is going to be adjusted based on your claims history. And as stated earlier, wrap programs are designed to enable you to create a better safety programs and keep your claims down, meaning that your premiums would decrease as a result of the lack or minimization of claims.

United Defense

When all of the individual entities involved in a project are insured separately, there is always going to be a bit of finger pointing when a lawsuit occurs because, naturally, no one wants to be held responsible for the issue. This could obviously cost everyone involved a lot of money in the form of legal expenses.

With a wrap-up program, you are all united within the coverage, so there’s no reason to try and shift the blame on any one party involved in the project if a lawsuit arises. Instead, all of the parties that are included in the wrap-up program will work together to help resolve all claims as quickly and cost-effectively as possible.

Possible Disadvantages of Wrap-Up Programs

Of course, there are some possible drawbacks that come with wrap-up programs. While the advantages seem to drastically out-weight the disadvantages, it’s important to mention some of the possible hassles that you could face if you decided to purchase wrap coverage, including the following:

Smaller Insurance Market

Not every broker can offer you the option of wrap-up programs (Embroker does, though). Furthermore, the bigger and the more complex your project is, the more limited the market will be. Because of this, it’s pretty hard to negotiate with carriers during the underwriting process, since the controlling entity doesn’t have a ton of options to choose from when looking for a wrap-up. But as we mentioned earlier, wrap-up programs will usually end up costing less than having to buy every policy individually, so you should be saving money even with a limited insurance market and less options available to you.

Added Administrative Burdens

While there are less administrative activities to take care of generally with a wrap-up, there are some duties that the controlling entity will have to take on that are specific to wrap-up programs. For example, you might have to educate everyone involved about the wrap-up program, enroll them, take control of the project safety plan, and more. However, many controlling entities get their brokers to take of these types of tasks, essentially making their brokers “wrap-up administrators” in order to keep everything running smoothly. Remember, wrap-up programs are not recommended for small projects in which these added administrative tasks might seem to be too much of a hassle. Getting a wrap-up to insure a large project and allowing your broker to handle the administration is usually the best way to go.

Insolvency Risks

If the controlling entity becomes insolvent, a wrap-up program will not protect everyone involved from possible coverage gaps. If the wrap-up program includes umbrella policies that are in place to help out in the case of insolvency, some gaps could be partially filled. However, everyone involved in the wrap-up project would be affected by the insolvency of the controlling entity. It’s important to remember that the very purpose of a wrap-up is to spread the risk out as evenly as possible between project partners.

The Pros and Cons of OCIPs for Owners and Contractors

While we have already discussed some of the most common advantages and disadvantages of wrap-up programs, let’s take a more detailed look at what the specific pros and cons of OCIPs are from the perspective of both the owners as the controlling entities and the contractors and subcontractors that are included in the coverage:

Possible Advantages for Owners

  • Better Protection: It’s easier to get broader coverage with higher dedicated limits for everyone involved. If you are getting higher dedicated limits for your contractors and subcontractors, you are better protected as well.
    Lower Costs: With more effective and comprehensive safety measures in place as a result of the OCIP, losses should go down as well. You’ll also spend less on coverage compared to having to buy every policy individually.
  • Time Saved: Having a OCIP administration process in place saves you time when it comes to common insurance tasks, such as tracking claims and getting certificates of insurance.
  • Customized Coverage: A greater ability to custom-build your policy according to the project’s risk profile.
  • Claims Control: As the controlling entity, you will be made aware of all claims first and will have full control over every claim process. Even if you are all entering into the process together as a result of the wrap-up, owners will have more control since they are sponsoring the coverage.

Possible Disadvantages for Owners

  • Administrative Hassles: As already mentioned, if you don’t have an administrator to handle everything, you’re going to have to spend more time managing your coverage. You’ll also have to pay additional administrative costs to set everything up. Many times, the owners will have to work with accountants, lawyers, and even HR personnel to get everything set up.
  • Potential False Claims: You are going to have to maintain a better and more complete audit of your claim processes to make sure that they are all legit. Sometimes subcontractors might want to take advantage of the broad coverage afforded to them through the OCIP by claiming injuries that did not occur on the job site.

Possible Advantages for Contractors

  • Better Coverage: An OCIP can potentially offer higher limits and broader coverage for contractors compared to what a contractor would be able to receive when purchasing coverage themselves. This also allows contractors to bid on bigger projects that they would probably not be able to secure coverage for on their own.
  • Better Safety: OCIP jobs demand better safety procedures and improved loss prevention by their nature.
  • Clearer Claims Tracking: If the OCIP is being administered properly, the claims procedures will automatically be clearer and more streamlined. The general contractor also does not have to individually worry about potential claims related to subcontractors hired for the project.

Possible Disadvantages for Contractors

  • Worse Coverage: Coverage can really go both ways. Sometimes coverage for contractors will be better under an OCIP and sometimes it could be worse. Since the owners are taking out the coverage, it’s common to see gaps in the coverage or even lower limits compared to when contractors buy the coverage on their own. Having an expert broker by your side during the process of purchasing a wrap-up is very important, even if you’re not the controlling entity.
  • Complicated Bidding: Sometimes bidding on a larger OCIP-covered project can be much more difficult, because the contractor will have to give estimates on the project both with and without insurance as part of the equation.
  • Administrative Hassles: It takes more time and energy to track and report all of the information that is required by an OCIP. On top of that, general contractors will have to show and teach their subcontractors how to take care of these same administrative tasks themselves.
  • Extended Liability: It’s not uncommon for contractor liability to extend beyond the OCIP, meaning that it’s possible for the contractor to still be liable for damages even after the project has been successfully completed.
  • Lost Benefits: When a contractor buys workers’ compensation insurance on their own, for example, dividends that reward good safety outcomes on projects would be paid to the contractor. Under an OCIP, these dividends get paid to the owner.

Wrap-Up Insurance Costs

As is the case with any type of insurance you want to buy, there are many different factors that go into determining how much you are going to be paying for coverage. Of course, the size and cost of the project or projects that are figuring into the coverage are going to be very important, as well as the number of general contractors and subcontractors that are going to be participating in the project.

Insurers will also look at how many different contracts are being signed as part of the project, how long the project is going to take to complete, and how many different phases of work the project involves.

Above all, carriers will look at your claims history either with previous wrap-up programs or individual policies. Safety is generally a big issue when it comes to determining costs for wrap-up policies, so expect your carriers to be very interested in your claims history and how much you and your partners have invested in keeping everyone safe during your past business endeavours and construction projects.

Conclusion

As you can see, there is a lot to take into consideration when it comes to deciding whether purchasing a wrap-up insurance program is the right thing to do for a particular project. The common perception is that since wrap-ups are reserved for large and very expensive projects, the potential earnings involved for all parties make wrap-up programs, and the time you need to spend on putting them together, well worth it in the end.

Furthermore, it’s not entirely true that OCIPs are better for owners and CCIPs are better for contractors. In either case, all parties are working together on the project, which means that everyone involved needs to take the time to see what option will be the most favorable one for everyone who has a stake in the project, so that choosing a wrap-up program becomes a win-win situation for the developer, owner, general contractor, and subcontractors.

Now that you have a better understanding of OCIPs, CCIPs and wrap-up insurance programs in general, you may be wondering how all of this affects your business and where to go from here.

If you need more help or information you can reach out to our team of expert brokers. If you prefer to get started on intelligent quotes, you can get started by creating an Embroker account today.

Having a quality wrap-up program in place and a broker who can help you navigate the terms and conditions, as well as the claims process, can save you money and, more importantly, time.

Still want to do more research? Check out our guide on all the things you need to consider when getting insurance for construction companies and contractors.

Embroker is the easiest way to intelligently insure any business. We’re here to help!