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.
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.
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.
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.
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.
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.
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.
An OCIP is basically just a combination of traditional insurance policies merged into one program to suit the unique needs and risk exposures of a large construction project. What policies are included in your OCIP is ultimately down to you and the way you design your OCIP program with your insurance broker.
What Does an OCIP Cover?
Most OCIPs will include the following insurance policies in some form. Essentially, most of the policies that you would need for just about any construction project will be included and “wrapped-up” into your OCIP:
Commercial General Liability (CGL) Insurance: CGL policies, including those that are part of an owner controlled insurance program, provide protection from injury claims, advertising claims, and property damage claims. They will also cover defense costs in a lawsuit brought against you or anyone else involved in the project in addition to judgment and settlement monies.
Contractors who enroll in an OCIP will likely already have their own general liability policy. If they do, they will have to discuss options with their existing insurance provider. Ideally, the contractor will be able to adjust their coverage to not overlap or conflict with the OCIP. However, contractors who have inflexible insurance providers will be forced to carry overlapping policies or even cancel their existing policy.
Worker’s Compensation Insurance: Workers’ comp is another primary component of an owner controlled insurance program. The policy provides compensation to contractors and employees who are injured on the construction job-site. It covers medical bills, rehabilitation, and wage losses in the event of an injury.
Including workers’ compensation insurance within the OCIP is one of the biggest drivers of cost savings for the whole program. When a workers’ comp policy is added to the OCIP, the insurance provider will evaluate the owner’s vetting process for contractors and loss prevention measures that are in place on the project. If their risk estimate is low, premiums will be lower.
Builder’s Risk Insurance: A type of inland marine policy that insures the structures being built along with all of the materials that are onsite from damages caused by inclement weather, natural disasters, fire, and vandalism. Rather than having each contractor purchase builders risk insurance separately, it is logical to have this included in the insurance program to protect the property.
Optional Coverages: Other coverages you can consider are those that are specific to the project and the region in which the project is taking place, such as protection from natural disasters such as floods and earthquakes, pollution and environmental liability, and other industry-specific coverages that might be needed.
Completed Operations Coverage: This coverage will protect everyone enrolled in the insurance and it should ideally provide protection through the statute of limitations to make sure that everyone is protected for an extended period of time well passed the actual completion date of the project.
Subcontractor Default Insurance: One of the newer types of coverage available with OCIPs, this type of policy is actually pretty similar to surety bonds, protecting the sponsor of the project against failures related to the work of the contractor and subcontractors involved. This might be a better option financially than surety bonds in some cases, since contractors working under an OCIP might not put a lot of effort into finding surety bonds at the best possible price.
Professional Liability Insurance: The professional liability insurance purchased within an OCIP can cover engineers, architects, and other professionals associated with the project. Be sure to check if the design professionals involved in the project already have this type of coverage so you’re not buying it twice. If there are many professionals of this nature involved in the project, adding professional liability to the coverage might not make sense financially and even when you enroll all the engineers, architects, and other design professionals in the OCIP, the coverage might not be a good enough substitute for the professional liability insurance that they already have in place.
Excess Liability Insurance: Excess liability coverage, also known as umbrella coverage, extends the coverage of an existing commercial general liability policy. Excess liability insurance is added to an OCIP to increase limits and cover any possible gaps in the existing coverage. Contractors may also carry excess liability insurance already. In similar fashion to their CGL policies, contractors may need to modify or eliminate their existing policies to avoid overlap.
What Doesn’t an OCIP Cover?
It’s important to note that, in the end, any wrap-up program is essentially a bunch of different insurance policies that are bundled together. Therefore, any OCIP you buy will include most of the same exclusions that can be found in the policies that make up the OCIP.
Furthermore, even though owners can try to fill as many gaps as possible while working with their brokers to put together the OCIP, there are some coverages that are not offered through an OCIP:
Commercial Auto Insurance: Since it’s very hard to confirm that auto damages occurred while on the job and false claims are a lot harder to identify, OCIPs will not include commercial auto insurance. If the contractor needs auto insurance, they are going to have to buy it themselves.
Surety Bonds: Surety bonds are always bought by contractors through a third-party surety that gives guarantees that the project will be completed by the contractor according to the specifications of the project. Therefore, they cannot be included in the OCIP. Also, each individual contractor involved in the project is going to have to purchase the surety bonds they need independently.
Less Important Contractors and Other Third Parties: If there are contractors working on the project that are mostly working off-site they will not be covered by an OCIP typically, nor will other contractors that don’t have much of an involvement in the project, even though they are participating in some way.
If the contractor is building something for the project off-site, the work they are doing is not subject to the safety and loss prevention measures that the contractors working on-site have to adhere to while working. Any contractor that is either never or very rarely on-site will probably be left out of the OCIP coverage. Also, manufacturers, transporters, vendors, and other third-parties that are participating in a more limited way in the project will probably not be included in the coverage either.
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.
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.
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.
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