What are the types of wrap-up insurance?
The first is a contractor-controlled insurance program, or CCIP, where the general contractor purchases the coverage on behalf of the subcontractors and also provides your insurance. The second is an owner-controlled insurance program, or OCIP, where the owner purchases the coverage.
There are advantages and disadvantages to both. If the owner wants to save money, he or she will purchase the coverage. But if the owner wants a project-specific insurance program without any of the administrative responsibilities or savings, that person will pick the CCIP. The ultimate decision is based on the owner’s goals and objectives.
What problems can occur if an owner does not use an insurance wrap-up?
The biggest issue is that an owner will pay the contractors to provide insurance protection for both parties, but it may not adequately insure the owner. If the owner tenders that lawsuit to the contractor and the contractor’s insurance doesn’t respond positively, the owner’s insurance would be required to pay both legal defense and claim costs. That can be problematic. An owner may have a high deductible, bearing, in some cases, up to $20 million in losses. The losses that get paid under the owner’s insurance program can also impact future premiums on operational insurance.
What are the benefits of an insurance wrap-up?
One significant benefit is that the owner will have insurance coverage control. He or she has first-named-insured status under the policy, known coverage limits and insurance carrier, and completed operations coverage. Often, these programs have much higher limits than the normal amounts carried by contractors.
There is also enhanced and heightened safety awareness on the project. The insurance wrap-up also provides a platform to formalize the risk management strategy regarding the owner’s construction risk.
There can also be a significant cost savings by using a wrap-up and pooling the insurance into one single package. An owner can save 25 to 50 percent of the total insurance cost, or one-half percent to 1 percent of construction costs. Contractors will also have reduced litigation because everyone is insured under the same policy.
In addition, it levels the playing field during the bid process to increase minority business enterprise and/or women business enterprise participation in the project.
Tim Walsh is regional director, national wrap-up group with Aon Risk Services Central Inc. Reach him at (248) 936-5321 or [email protected].
