Patti Maluchnik, CIC, CBIA
Georgetown Insurance Service, Inc.
In the construction industry, Owner-Controlled Insurance Programs (OCIPs) and Contractor-Controlled Insurance Programs (CCIPs) – also commonly referred to as “Wrap-Up” or “Wrapped” insurance plans – have caused increasing confusion in recent years.
The concept of these programs involves the project owner (OCIP) or prime contractor (CCIP) purchasing a “master policy.” This policy covers insurance issues that pertain specifically to a construction project – usually a very large one. But, how exactly do you know if you need this type of a program? Let’s break down exactly what these programs are and some of the reasons for using them.
Where Are OCIP/ CCIPs Used?
While the concept is not new, the use of these programs is becoming more prolific and has grown into a larger scope of construction projects. Initially most of these programs were applicable to very large commercial and civil projects. However, today, we’re seeing OCIPs/CCIPs used in larger residential (multi-family) projects, as well.
OCIPs/CCIPs are also being used more for smaller projects than they have historically been in the past, further increasing their popularity. And while there used to only be a few key players in this market, the number of providers has grown immensely creating more competition among insurers.
Do I Need an OCIP/CCIP?
The main reason a company would use an OCIP/CCIP is to give the owner of a construction project greater control of the insurance concerns relating to that specific project. Here are some examples:
- Giving the owner direct involvement in policy terms, conditions, coverages, and limits of insurance.
- Managing a single policy versus a collection of individual policies held by numerous subcontractors is easier for the ongoing administration of a project’s insurance.
- Since all subcontractors will share the same limit on the OCIP master policy in lieu of each of their individually procured policies, a level of consistency is added to the project.
- Streamlining claims handling and safety efforts for the lifecycle of the project.
- Providing greater ability to negotiate coverages, limits, and rates such “buying in bulk.”
Are There Any Downfalls of OCIPs for Subcontractors?
It’s important to know that a subcontractor’s own insurance policy will usually exclude coverage for losses arising from a job that’s covered by an OCIP/CCIP policy. In addition, if a subcontractor can show records to prove existence of the policy at the time of audit, they will not charge a premium for insurance on a project where an OCIP/CCIP exists.
Even though there are many benefits to these programs, there are also some potential downfalls that subcontractors can run into, such as:
- Costs and rates may not be what they seem. Sometimes a subcontractor’s insurer and the underwriters for the OCIP/CCIPs insurer do not agree on the proper classification of the work being performed. While most trades are permitted to have multiple classifications, it’s not always clear cut. Ironworkers, mechanical contractors, concrete contractors, commercial interiors, and many others have an array of classifications applicable to their work. Yet underwriters often disagree on which classifications make sense.
- Deductibles can be much higher on an OCIP/CCIP policy than a policy purchased directly by a subcontractor. For example, let’s say a subcontractor is in the process of installing a large piece of corrugated sheet metal on a rooftop when a strong gust of wind hits and causes the metal to fall six stories onto a car below. The claim – totaling $35,000 – is submitted under the OCIP/CCIP policy that’s insuring the subcontractor for the project. However, turns out the OCIP policy has a much larger $50,000 deductible, resulting in an out-of-pocket claim for the subcontractor.
- Coverage provided by the OCIP/CCIP purchaser may not be as broad as a subcontractor’s own policies. The OCIP/CCIP might have a five-year limitation for project-related liability claims yet a subcontractor’s own insurance might have no time limit.
- Limits of insurance selected by the OCIP/CCIP purchaser could be inadequate for the project. For example, a large multi-family project insured under an OCIP/CCIP might have an insurance limit of $20,000,000 to cover any claims resulting from the entire project but be limited to a period of five years.
- While the OCIP/CCIP purchaser gains more control of the claims and safety efforts on a project, a subcontractor subsequently loses some of theirs. A large workers compensation claim can surface on a subcontractor’s NCCI Experience Modification only for it to be determined that the claim occurred on a job covered by an OCIP/CCIP. In this instance, the claim would also be handled by the OCIP/CCIP administrators and insurer covering the project.
- But while the owner gains some administrative simplicity with a single OCIP policy, a subcontractor can experience increased burden and confusion when it comes to reporting. This especially rings true when there are multiple jobs under various OCIPs/CCIPs since very few of reporting formats and requirements are the same.
- WRAP exclusions can exist on a subcontractor’s insurance policy. This means that anytime a contractor is working on an OCIP/CCIP project, their current insurance carrier will exclude coverage for that project.
- An OCIP/CCIP can diminish the buying power for a subcontractor’s own policy. If a large portion of the subcontractor’s insurance premiums are being paid to the insurer(s) writing the OCIP/CCIP policies, it can affect underwriting and relationships with the subcontractor’s existing providers. For example, a subcontractor can have so much work insured under OCIP/CCIP plans (all of it, in certain cases) that their own policy doesn’t generate enough premium to keep their long-time insurer interested.
There is no magic solution to solve all issues, concerns, costs, and claims that can surface from insuring a large construction project. Regardless of the scenario, whether you’re a:
- Property owner and/or developer relying on your GC’s insurance,
- Large prime GC relying on subcontractor agreements, and the accuracy and validity of Certificates of Insurance, or
- Trade contractor relying on the insurance purchased by the Owner or Contractor under an OCIP or CCIP
It’s best to avoid any situations, personally and professionally, where you are relying on somebody else’s insurance.
Have questions? Contact us to speak with a licensed insurance professional.