An owner controlled insurance program is an insurance policy held by a property owner during the construction or renovation of a property, which is typically designed to cover virtually all liability and loss arising from the construction project (subject to the usual exclusions). The policy package usually contains Commercial General Liability Policy, Workers Compensation policy with employers liability and depending on the project or program in place there are specific forms outlining coverage via forms endorsement. Also known as a “Wrap-Up” in the industry.
The traditional method for insuring construction consisted of each general contractor and sub-contractor obtaining their own insurance policies from any provider of their choosing. In turn, they would build their policy premiums into their cost structure, which in turn became part of their bids. This meant that by accepting a general contractor’s successful bid, the property owner was indirectly paying for administrative overhead at dozens of separate insurance brokers and insurance companies.
In OCIP, all construction, materials, hazard, workers’ compensation, terrorist, and other building-related insurance is purchased by the property owner as part of a single policy from a single insurer. Thus, property owners benefit from OCIP in that all insurance costs are collected into one transparent policy premium rather than spread across the bids of dozens of contractors and subcontractors, and they have direct control over administrative costs by dealing with a single broker and insurer.
A Contractor Controlled Insurance Program (CCIP), is similar to an OCIP except that the General Contractor (GC) or Construction Manager sponsors the insurance program. Sometimes even combination of an OCIP and CCIP have been formed on a loss sensitive basis where both Owner and GC share in the savings or additional cost if losses are higher than expected on the primary insurance program which usually includes Workers’ Compensation (WC) and General Liability (GL). There has also been a Developer Controlled Insurance program (DCIP) which may or may not include WC, but provides GL, Umbrella and Excess Liability mainly for the protection of construction defect claims.
OCIP advantages to owners over traditional insuring methods
- Lower costs to the property owner as bulk purchase of insurance lowers total cost.
- Owner controlled insurance broker and insurance underwriter requires more stringent safety and loss control procedures.
- Reduction in time required for contractors to obtain insurance certificates
- Workers Compensation X-Mod Factor falls on the sub-contractors not the Owners X-Mod Factor (enrolling the subs) into the OCIP
- Improved risk control and claim handling
OCIP disadvantages to owners over traditional insuring methods
- Increased administrator burden for broker and underwriter
- Increased accounting effort required to isolate contractor and subcontractor costs and insurance burden
- Potential for contractors insured under the OCIP to claim for non-project injuries
OCIP advantages to contractors over traditional insuring methods
- Potential greater insurance limits that contractor could not otherwise obtain.
- Potential for contractor to work on projects that contractor could not otherwise obtain.
OCIP disadvantages to contractors over traditional insuring methods
- Potential gaps in insurance coverage
- Potential losses in prepaid insurance premiums
- Uncompensated administrative costs of the contractor
- Deductions from contract value that exceed actual insurance costs
Source: Wikipedia. “Owner-controlled insurance program” http://www.wikipedia.org. Accessed November 30, 2015. http://en.wikipedia.org/wiki/Owner-controlled_insurance_program
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